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CO-OPERATIVE  CREDIT  FOR  THE 
UNITED  STATES 


BY  THE  SAME  AUTHOR 

People's  Banks:     A  Record  of  Social 
AND  Economic  Success. 

Co-operative  Banking.    Its  Principles 
AND  Practice. 

A    Co-operative    Credit    Bank    Hand- 
book. 

Co-operative  Credit  Banks. 

co-opebation  in  aqbiculttjre. 


CO-OPERATIVE  CREDIT 

FOR  THE 

UNITED  STATES 


BY 
HENRY  W.  WOLFF 

Late  President  of  the  International  Co-operative  Alliance,  author  of 

"People's   Banks:  a  Record  of  Social  and  Economic  Success"; 

"Co-operative    Banking";    "Agricultural    Banks:    Their 

Object  and  their  Work";  "A  Co-operative  Bank 

Handbook";  "Village  Banks:  How  to  start 

them,  how  to  work  them,  etc.";  "A 

People's  Bank  Manual";  and 

"Co-operation  in 

Agriculture" 


Hew  Korft 

STURGIS  &  WALTON 

COMPANY 

1917 

.^11  rightt  reserved 


COPYEIGHT,    1917 

By  STURGIS  &  WALTON  COMPANY 


Set  up  and  electrotyped.     Published,  May,   1917. 


H   (.■ 


PREFACE 

Evidently  Co-operative  Credit  has  become  an  ob- 
ject of  attention  to  the  American  public.  The  echoes 
of  European  records  of  success  have  sounded  across  the 
Atlantic  and  people  in  the  United  States  appear  desir- 
ous of  putting  the  approved  European  recipe  for  want 
of  working  capital  to  a  test. 

Of  the  great  value  of  Co-operative  Credit  as  a  pro- 
ductive force  and  a  creator  of  widely  diffused  wealth 
there  can  no  longer  be  any  question.  The  object  to  be 
accomplished  is  to  put  the  successful  principle  in  a 
shape  to  suit  American  surroundings. 

Time  and  circumstances  have  given  to  the  one  im- 
mutable principle  dominating  throughout  a  variety  of 
differing  shapes  and  accordingly  produced  a  number  of 
"  schools  "  now  proffering  conflicting  advice. 

Under  such  circumstances  perhaps  an  impartial  and 
^  "  objective  "  presentation  of  the  matter,  coming  from 
'vj^  one  who  has  for  nearly  a  quarter  of  a  century  been  a 
^  close  student  and  careful  observer  of  the  entire  co- 
operative credit  movement,  in  all  its  parts,  in  touch 
with  all  its  various  sections,  though  not  identified  with 
any  as  a  partisan,  may  prove  acceptable  to  American 
readers  as  a  help  for  further  consideration  and  do  some- 
thing towards  preventing  false  starts,  which  under  the 
present  aspect  of  things  are  a  danger  to  be  reckoned 
with. 


vi  PREFACE 

The  same  ground  has,  up  to  the  dates  of  publication 
of  the  several  works,  been  covered  by  the  same  writer 
in  earlier  books.  Those  books  were,  however,  written 
specifically  for  British  readers.  In  the  present  book 
it  has  been  the  author's  endeavour  to  present  the  same 
picture,  as  fully  and  as  impartially,  in  a  manner  suited 
to  the  ideas  and  habits  of  an  American  public. 

H.  W.  W. 
May,  1917. 


CONTENTS 

CHAPTER  PAGE 

Preface    v 

I    Why  Co-operative  Credit  Is  Wanted    .     .       1 

II    General      Principles      of      Co-operative 

Credit        30 

III  Co-operative    Banks    Based    upon    Share 

Capital 61 

IV  Co-operative  Banks   Based   upon  Unlim- 

ited Liability 95 

V  Central  Institutions       .     .     .     .     .     .131 

VI    Control  and  Audit 158 

VII    Variants  and  Dangerpoints 176 

VIII  Co-operative  Mortgage  Credit  ....  316 

IX    In  the  Wake  of  Credit 272 

X    Legislation        289 

XI    Conclusion 312 

Index 345 


CO-OPERATIVE  CREDIT  FOR 
THE  UNITED  STATES 

CHAPTER  I 

WHY    CO-OPEBATIVE    CREDIT    IS    WANTED 

Opinion  in  the  United  States  has  settled  down  to 
the  conclusion  that  handier  and  more  accessible  credit 
is  one  of  the  most  crying  needs  of  the  day.  Three 
Presidents  succeeding  one  another  in  office  have  given 
forcible  expression  to  that  conviction;  and  Congress 
and  other  large  and  representative  public  bodies  —  like 
the  Southern  Commercial  Congress  —  have  lent  it  their 
authoritative  support.  An  official  Commission  of  In- 
quiry has  been  despatched  to  Europe  specially  to  take 
note  of  what  is  being  done  in  that  quarter  of  the  globe 
to  meet  such  pressing  want,  which  it  has  rightly  been 
concluded  is  not  one  of  local  occurrence  only.  It  is 
general  throughout  the  world.  The  shoe  is  in  the 
United  States  at  the  present  moment  found  to  pinch 
most  painfully  in  the  province  of  agriculture.  There 
are  special  reasons  for  this.  But  once  the  source  comes 
to  be  tapped,  there  will  probably  be  more  people  to 
want  to  drink  of  its  refreshing  waters.  Experience  in 
this  matter,  as  might  be  demonstrated  by  instances, 
goes  to  show  that  the  need  of  credit  is  not  generally 

1 


2  CO-OPERATIVE  CREDIT 

definitely  realised  before  relief  is  actually  brought 
within  reach;  whereas,  once  credit  is  provided  for,  a 
multitude  of  fair  claims  soon  come  to  be  set  up.  The 
presence  of  the  remedy  provokes  a  diagnosis  of  the 
disease.  In  the  very  case  of  the  inquiry  just  alluded 
to,  it  is  rather  the  report  of  what  is  being  done  else- 
where which  has  called  forth  such  research  than  a 
previously  clearly  realised  want  —  although  after  the 
suggestion  of  means  of  relief  offered  that  want  has 
been  clearly  enough  admitted. 

Credit,  of  course,  there  is  —  a  large  volume  of  it,  in 
the  United  States  as  elsewhere.  But  there  can  be  no 
question  but  that  the  use  of  it  still  remains,  as  it  has 
been  from  the  date  of  its  first  introduction,  the  privi- 
lege of  a  minority,  to  wit,  the  wealthy,  and  that  it  has 
trickled  down  only  slowly  and  sparingly,  and  very  un- 
equally to  the  lower  strata.  Much  as  this  is  to  be  de- 
plored—  since,  in  the  late  Signer  Vigano's  words,  it 
is  the  poor  who  needs  credit  most  and,  as  Signor  Gius- 
tino  Fortunate  has  put  it,  "  the  poor  is  denied  credit 
because  he  is  poor,  and  he  remains  poor  because  he  is 
denied  credit "  —  there  is  nothing  but  what  is  per- 
fectly natural  in  this  state  of  things  and  no  fault  what- 
ever is  to  be  found  with  the  bodies  dispensing  credit 
on  the  score  of  supposed  unfair  partiality.  It  is  cus- 
tom which  determines  practice,  not  inherent  justice. 
Nothing  teaches  the  advantages  of  the  use  of  money 
like  the  possession  of  it ;  and,  since  credit  is  impossible 
without  security,  he  naturally  is  the  first  to  obtain 
credit  who  has  the  most  visible  —  and,  if  necessary, 
attachable  —  security  to  offer. 


WHY  CO-OPERATIVE  CREDIT  WANTED       3 

It  will  be  well  in  this  connection  to  bear  in  mind 
of  how  recent  origin  really  credit  in  our  present  sense 
—  productive  credit  —  is.  Credit  of  a  certain  sort  — 
consumer's  credit  —  there  has  been  ever  since  there  has 
been  money.  The  man  in  need  naturally  appeals  to 
his  neighbour  to  rescue  him  from  his  embarrassment. 
Kings  in  difficulties  have,  as  Leon  Say  says,  borrowed 
on  the  security  of  their  crowns  and  jewels.  Spend- 
thrifts have  invoked  the  aid  of  the  usurer  to  help  to 
ruin  them.  The  man  whose  ship  has  unexpectedly 
failed  to  come  in,  or  whose  harvest  has  disappointed 
him,  has,  like  Shakespeare's  Antonio,  gone  to  his  par- 
ticular Shylock  for  assistance  —  and  has  got  it.  There 
is  plenty  of  this  kind  of  borrowing  still  going  on,  and 
probably  will  be  while  the  world  stands.  Everybody, 
except  the  usurers  who  fatten  upon  it,  recognises  it  as 
an  evil  and  a  danger.  Plenty  of  wise  saws  —  which 
are  now  freely  misquoted  against  credit  of  a  totally 
different  sort  —  have  been  coined,  from  King  Solo- 
mon's day  downwards,  to  brand  it  as  a  snare.  "  Who 
goes  a-borrowing  goes  a-sorrowing,"  "He  that  hateth 
suretyship  is  sure "  —  there  are  plenty  of  such  pro- 
verbs which,  like  every  proverb,  are  unimpugnable  in 
their  proper  sense,  but  wholly  out  of  place  in  other 
applications.  All  this  kind  of  credit  is  consumer's 
credit  —  credit  which  is  designed  to  make  up  some 
loss  already  incurred.  It  may  be  legitimate.  In  the 
majority  of  cases  it  is  not  so.  In  favourable  cases  it 
may  reduce  loss  to  the  borrower  by  enabling  him  to 
tide  over  a  difficult  time.  It  never  produces  value. 
As  a  rule  it  adds  loss,  which  may  be  heavy,  to  loss 


4  CO-OPERATIVE  CREDIT 

already  incurred.  It  is  reflection  upon  this  kind  of 
credit  which  has  prompted  that  overtimid  rich  men's 
superstition,  that  whoever  is  poor  is  not  entitled  to 
credit  and  should  under  all  circumstances  be  denied  it. 

There  can  be  no  doubt  that  credit  of  the  sort  just 
described  should  be  discouraged. 

However,  the  credit  which  public  opinion  now  de- 
mands in  the  United  States  —  in  the  first  instance  for 
farmers  —  is  of  an  entirely  different  complexion.  It  is 
in  very  truth  the  very  antipodes  of  improvident  credit, 
and  offers  in  fact  the  most  effective  antidote  against 
it.  Far  from  engendering  improvidence,  it  impresses 
upon  the  mind  a  vivid  sense  of  responsibility,  as  noth- 
ing else  will  impress  it;  it  trains  to  provident  employ- 
ment of  money  and  teaches  businesslike,  precedent 
calculation.  Far  from  leading  to  loss,  it  guards 
against  it  and  produces  value.  Far  from  weakening 
character,  it  directly  strengthens  it.  It  is  a  credit 
which  will  repay  itself  out  of  that  on  which  it  is 
spent. 

Credit  of  this  sort  the  world  requires  greatly,  in 
steadily  increasing  volume.  For  trade,  commerce,  in- 
dustry —  every  productive  calling  —  advancing  by  de- 
grees, has  long  since  outgrown  its  accustomed,  old- 
world,  binding  garb.  It  wants  space  to  expand  in. 
It  wants  more  nourishment  to  increase  its  size.  Trans- 
lated into  economic  English,  that  means  in  the  main 
that  it  wants  more  money  to  work  with.  For  it  wants 
more,  or  else  better  skilled,  labour  to  feed  it  —  which 
labour  has  grown  dearer  with  increasing  demand.  Or 
else    it    wants    costly,    up-to-date,    labour-saving    ma- 


WHY  CO-OPERATIVE  CREDIT  WANTED       5 

cliinery  to  make  that  labour  dispensable.  It  has  more 
competition  to  face,  which  means,  that  it  must  manu- 
facture on  a  larger  scale,  so  as  to  manufacture  more 
cheaply ;  and  with  greater  care,  so  as  to  turn  out  a  tip- 
top article.  All  this  requires  a  larger  conmiand  of 
cash. 

Such  cash  may  well  be  hired  only.  For  it  is  wanted 
only  to  perform  a  distinct  task  occupying  a  limited 
space  of  time,  which  time  elapsed,  it  will  return  with 
interest  and  may  be  repaid.  It  answers  a  productive 
want  just  like  tools,  or  power,  or  raw  material.  In 
fact,  it  is  to  greater  advantage  that  it  should  be  hired 
than  possessed.  For  money  possessed,  its  owner  is 
free  to  deal  with  according  to  his  momentary  fancy, 
without  owing  any  one  any  account.  If  he  wastes  it, 
that  is  his  own  affair,  and  no  one  can  haul  him  over 
the  coals  for  reducing  the  productive  power  and  wealth 
of  the  nation.  Let  the  money  be  borrowed  only,  and 
the  man  who  employs  it  cannot  help  feeling  his  re- 
sponsibility at  every  turn  and  in  every  act.  That 
money  has  to  be  repaid,  and  repaid  within  a  given 
time.  Such  consideration  cannot  fail  to  make  our 
man  careful. 

From  a  mere  convenience,  mere  improvident,  risky 
and  costly  accommodation,  in  this  manner  credit  has 
been  raised  to  a  more  dignified  position,  for  which  the 
way  has  been  slowly  paved  by  the  purely  commercial  or 
banking  employment  of  credit  (for  the  transmission  of 
cash  or  the  facilitation  of  the  sale  of  goods),  on  which 
completed  transactions  credit  has  for  a  long  time  back 
been  allowed.     Its  sphere  of  action  has,  from  the  past, 


6  CO-OPERATIVE  CREDIT 

or  at  best  the  present,  become  extended  to  the  future. 

Here  was  a  new  opening  for  credit  of  far-reaching 
and  most  beneficent  import!  Here  was  a  new  stimu- 
lus to  business,  which  promised  to  carry  it  successfully 
over  all  obstacles  of  modern  business  organization! 
Assuming  that  the  enterprise  was  sound,  there  were 
no  longer  any  limits  to  the  working  power  of  the  capi- 
tal employed.  Credit  would  increase  it  according  to 
requirements.  Credit  would  admit  of  the  use  of  the 
most  perfected  machinery,  the  most  efficient  power  and 
wholesale  production. 

The  world  has  benefitted  largely  by  that  admission 
of  credit  as  a  productive  factor.  For,  as  far  as  it  could 
be  claimed,  by  far  the  greatest  part  of  the  world's  busi- 
ness is  now  carried  on  with  the  use  of  credit.  And, 
were  credit  to  cease,  trade,  industry,  commerce,  even 
national  finance  and  whole  countries'  care  for  social 
needs  would  come  to  an  end. 

Unfortunately  there  was  still  the  problem  of  security 
to  be  reckoned  with.  For  credit  is  of  course  altogether 
impossible  without  security.  And  the  security  must 
be  such  as  will  satisfy,  not  the  borrower,  but  the  lender. 
Credit  means  "faith."  The  ancient  Eomans  openly 
spoke  of  "  fides."  The  lender  wants  to  be  able  to  re- 
pose "  faith  "  in  the  borrower  or  in  his  enterprise  if  he 
is  to  part  with  his  money.  And  he  naturally  turned  to 
a  visible  foundation  for  his  trust  or  faith  first,  because 
he  did  not  know  of  any  other.  He  would  lend,  not 
for  the  most  promising  enterprise,  but  to  the  wealthiest 
person  embarking  upon  it.  Accordingly  credit  nat- 
urally gravitated  to  wealthy  men,  who  have  known  so 


WHY  CO-OPERATIVE  CREDIT  WANTED       7 

well  to  turn  it  to  account  that  it  is  no  exaggeration  to- 
day to  say,  that  the  most  valuable  benefit  that  the  pos- 
session of  money  ensures  in  business  is,  that  it  per- 
mits the  largest  credit.  It  is,  for  instance,  on  their 
money  obtained  by  credit  that  bankers  net  their  profits, 
not  on  their  own  share  capital,  although  that  very 
reasonably  is  made  to  serve  as  criterium  in  the  act  of 
distribution. 

However,  the  man  who  is  not  wealthy  requires  credit 
for  his  business  quite  as  much  as,  if  not  more  than,  the 
Croesus,  as  the  Italian  economists,  already  quoted,  have 
shown.  And  in  the  interest  of  the  community  it  is  of 
the  greatest  importance  that  he  should  have  it.  For 
the  community  is  made  up,  not  of  the  few  rich  men 
who  gleam  like  sunlit  mountain  tops  scattered  over  a 
wide  surface,  but  in  the  main  of  the  humbler  strata  of 
the  population,  whose  well-being  determines  its  own. 
Our  humbler  man,  indeed,  requires  credit  all  the  more 
for  the  very  reason  that  he  is  less  well  endowed  with 
capital.  If  he  is  in  trade,  it  is  very  likely  that  he  will 
have  on  his  part  to  allow  credit  to  his  customers.  He 
must  —  like  his  wealthier  rival,  with  whom  he  com- 
petes —  produce  up  to  the  mark,  and  for  that  he  re- 
quires the  use  of  money.  The  money  will  be  worth  the 
lending,  because  in  comparison  with  his  wealthier 
neighbour  our  smaller  man  brings  more  of  what  really 
is  his  own  to  the  more  modest  enterprise.  His  labour 
stands  for  more  in  the  collective  account.  There  is 
larger  scope  for  the  exercise  of  his  personal  qualities, 
his  judgment,  his  talent  and  his  efforts,  in  proportion 
to  the  money  employed. 


8  CO-OPERATIVE  CREDIT 

These  poorer  claimants  for  credit  have  thus  far  been 
only  very  inadequately  supplied  with  it.  There  has 
been  some  credit,  indeed,  which  has  trickled  down  to 
them,  owing  to  some  fortunate  circumstance  or  other. 
But  it  has  been  eclectic,  capricious,  independable,  and 
certainly  insufficient  credit,  filtering  down  unequally  to 
the  lower  strata,  like  the  moisture  which  in  Down  coun- 
try has  in  places  decomposed  the  barren,  dry  chalk, 
to  form  of  it  that  marvellously  rich  red  soil,  decayed 
chalk,  which  will  bear  magnificent  crops,  while  leaving 
the  great  mass  of  that  chalk  formation  by  its  side  in  its 
pristine  condition,  barren  and  dry. 

This  being  so,  let  us  picture  to  ourselves  what  readily 
accessible  credit  for  any  one  who  could  profitably  em- 
ploy it  would  do  for  the  improvement  of  economic  con- 
ditions in  the  world.  The  small  tradesman,  the  small 
manufacturer,  the  working  man  with  ideas  and  honesty 
—  it  is  these  who  make  up  the  bulk  of  the  world's  popu- 
lation and  whose  wellbeing  means  the  wellbeing  of  the 
world,  as  their  distress  means  the  distress  of  the  world. 
There  are  millions  of  creatures  with  gifts,  with  powers, 
with  ability,  condemned  to  a  scale  of  earning  which  is 
much  below  their  abilities,  to  a  measure  of  production 
the  exiguousness  of  which  leaves  the  world  the  poorer. 
We  have  read  lately  with  admiration  of  the  great  work 
of  soil  improvement  in  progress  in  Egypt,  by  which 
hundreds  of  square  miles  now  lying  absolutely  barren, 
as  being  saturated  with  salt,  are  to  be  changed  into  fer- 
tile loam,  producing  in  the  shape  of  peculiarly  silky 
cotton  one  of  the  most  remunerative  crops,  by  the  simple 
process  of  unsalting.     Comparing  large   things  with 


WHY  CO-OPERATIVE  CREDIT  WANTED       9 

small,  on  a  far  larger  scale  might  a  similar  fertilising 
work  be  carried  out  in  the  human  desert  of  under- 
utilised labour,  could  the  pernicious  salt  which  now 
sterilises  it,  in  the  shape  of  the  want  of  a  suitable  work- 
ing fund,  be  removed  from  it. 

There  is  not  a  stratum  in  human  society  in  which 
at  some  point  or  other  the  use  of  cash  could  not  evoke 
richly  generating  power  and  promote  production  profit- 
able for  the  world  as  for  the  individual.  Give  these 
people,  so  far  as  they  are  found  deserving  of  it,  the  use 
of  cash,  place  the  financial  ladder  before  them  on  which 
they  may  mount  from  rung  to  rung  —  what  a  different 
world  would  this  world  of  ours  become ! 

The  need  here  instanced  has  in  the  United  States 
been  most  noticed  in  the  case  of  Agriculture,  in  the 
first  place  because  Agriculture  has  greatest  difficulty 
in  accommodating  itself  to  the  traditional  conditions 
of  the  credit  market,  and,  in  the  second  because  Agri- 
culture finds  itself  in  a  real  fix  owing  to  a  great  change 
in  the  circumstances  amid  which  it  is  called  upon  to 
work.  As  the  Hon.  J.  Wilson  put  it  while  still  at  the 
head  of  the  United  States  Department  of  Agriculture, 
Agriculture  has  in  the  United  States  for  the  most  part 
passed  through  what  he  describes  as  the  first  stage  of 
its  development,  the  "  exploitational  "  stage.  That,  no 
doubt,  still  leaves  a  very  considerable  portion  of  it  in 
that  early  stage.  For  we  read  of  diminishing  crops 
and  of  a  steadily  shifting  —  and  indeed  dwindling  — 
farming  population  —  in  the  South  one  third  of  the 
cultivating  farmers  being  in  possession  of  their  holdings 
only  one  year  or  less.     The  second  stage,  according  to 


10  CO-OPERATIVE  CREDIT 

Mr.  Wilson's  chronology,  brings  no  relief.  For  it  is 
the  stage  only  of  astonishment  at  the  unexpected  falling 
off  of  returns  which  leaves  farmers  —  as  many  accounts 
testify  —  with  scarcely  any  remuneration  —  if  indeed 
any —  for  their  labour  and  risk.  Farmers  stand 
aghast  at  the  discovery  that  the  old  accustomed  methods 
will  no  longer  produce  the  accustomed  results.  Many 
of  them  desert  their  calling  and  add  to  the  over-filling 
of  towns  and  of  other  walks  of  life,  while  statesmen, 
like  the  three  Presidents  referred  to,  complain  that  at 
this  rate  it  will  not  be  long  before  the  United  States, 
once  the  granary  of  the  world,  will  have  to  import  food, 
instead  of  exporting  it.  Beyond  the  stage  of  wonder- 
ing despair  and  astonishment  only  a  small  vanguard  ap- 
pear thus  far  to  have  advanced  into  the  promised  land 
of  intensive,  paying  AgTiculture,  in  which  science  and 
skill,  with  a  well  filled  exchequer  at  their  back,  re-fer- 
tilise the  exhausted  soil  and  scientifically  produce  full 
crops  by  providing  the  proper  nutriment  and  cultiva- 
tion for  them.  There  are  some  pioneers,  some  men 
with  brilliant  records,  whose  success  ought  to  serve  as 
an  encouragement  to  their  class.  But  they  are  com- 
paratively few.  It  is  for  such  resuscitation  of  Agri- 
culture that  the  use  of  money  is  required.  And  it  will 
well  repay  it.  Science  and  skill  by  themselves  will 
avail  nothing.  They  must  have  the  material  to  work 
upon.  And  the  material,  and  also  its  proper  manipu- 
lation, cost  money.  We  have  got  to  that  stage  in  Agri- 
culture in  which  the  dollar  tells,  and  the  more  dollars 
there  are,  the  more  certain  and  the  more  substantial 
will  be  the  effect.     For  it  is  always  the  last  hundred- 


WHY  CO-OPERATIVE  CREDIT  WANTED      11 

weight  of  fertilisers,  the  last  sack  of  feeding  stuff  which 
produces  the  largest  profit.  The  first  allowance  serves 
only  for  sustentation.  Nourish  a  bullock  on  sustenta- 
tion  rations  and  he  will  never  be  fit  for  the  butcher. 
Manure  a  field  in  a  niggardly  way  and  it  will  at  best 
repay  the  cost  of  production.  What  produces  profit 
lies  beyond.  If  we  want  to  hold  our  owti  in  Agricul- 
ture, make  the  land,  greatly  appreciated  as  it  has  be- 
come under  increasing  demand,  pay,  we  must  have  a 
bagful  of  money  to  lay  out  upon  it  without  stint.  The 
story  of  the  owner  of  a  thousand  acres  and  three  daugh- 
ters is  well  known.  lie  just  managed  to  make  both 
ends  meet,  and  when  the  time  came  for  giving  his  eldest 
daughter  in  marriage  he  had  no  dower  to  bestow  upon 
her.  So  he  gave  her  250  of  his  1,000  acres  of  land. 
"  We  shall  have  to  pinch  to  eke  it  out,"  was  what  he 
said.  But  to  his  surprise  he  did  better  on  the  reduced 
area.  His  small  working  capital  went  further.  And 
he  did  best  of  all  when,  having  married  all  his  three 
daughters,  and  giving  each  the  same  portion,  he  had 
only  250  acres  left  to  employ  his  old  working  capital 
upon,  which  at  first  had  had  to  do  duty  for  1,000.  The 
Eomans  had  a  proverb  which  said :  It  is  not  the  land 
which  produces  the  crop,  but  the  year.  What  with 
the  pressure  of  population  and  the  ample  new  resources 
which  science  and  observation  have  placed  at  our  dis- 
posal, it  is  now  distinctly  the  dollar  —  to  be  directed 
of  course  by  skill  and  businesslike  management  — 
which  produces,  upon  a  soil  which  to-day  serves  for 
little  more  than  to  give  the  crop  its  standing  room  and 
the  requisite  physical  conditions,  not  its  nutriment,  not 


12  CO-OPERATIVE  CREDIT 

the  necessary  nursing  and  training.  The  supply  of 
that  must  be  left  to  the  dollar. 

The  truth  of  this  is  still  far  too  little  understood. 
America  is  not  singular  in  this.  There  has  been  the 
same  tale  to  tell  in  every  country  of  the  globe.  It  is  a 
diflScult  lesson  to  learn.  In  no  calling  is  the  "  wisdom 
of  our  ancestors "  held  in  higher  esteem,  is  the  old 
"  leather  jacket "  more  reverently  respected  than  in 
agriculture.  "  My  father  farmed  in  this  fashion,  why 
should  not  I  ?  "  The  hidden  scientific  ways  of  crops 
and  beasts,  the  secrets  of  plant  nourishment  and  animal 
nutrition  make  themselves  appreciated  by  the  brain  of 
the  practical  worker  only  with  difficulty.  To  bring  that 
about  we  still  want  what  a  present  day  American  writer 
has  called  "  a  veritable  campaign  of  education."  There 
are  plenty  more  things  in  heaven  and  earth  than  are 
dreamt  of  in  our  old  farmers'  philosophy.  Add  to  that 
that  the  farmer  is  by  nature  —  all  the  world  over  —  an 
uncommunicative,  rather  distrustful,  self -engrossed 
and  self-sufficient  being!  I  write  as  a  man  who  has 
been  one.  And,  if  it  were  otherwise,  if  the  knowledge 
of  the  new  agricultural  teaching  were  to  penetrate  into 
the  farmer's  mind,  if  he  were  to  grasp  the  value  of  a 
scientific  rotation  of  crops,  of  cow  testing,  of  eclectic 
breeding  and  so  on,  where  is  the  money  to  give  eflFect 
to  it? 

It  is  perfectly  true,  as  is  often  objected,  that  there 
are  farmers  in  the  United  States  who  can  borrow  money 
at  fair  rates.  No  doubt  there  are.  Substantial  men 
can  always  obtain  credit  anvAvhere,  whatever  their  call- 
ing.    But  how  many  are  there  who  are  so  situated? 


WHY  CO-OPERATIVE  CREDIT  WANTED      13 

And  do  these  men,  and  can  they,  use  their  credit  to  the 
extent  that  it  ought  to  be  used,  for  employment  on  their 
field,  in  the  same  way  that  manufacturers  and  mer- 
chants use  theirs  ?  That,  I  fear,  is  greatly  to  be  doubted. 
It  is  so  just  because  it  has  not  yet  dawned  upon  farmers 
as  a  class,  what  very  profitable  use  might  in  their  call- 
ing be  made  of  working  credit,  which  puts  value  into 
the  farm  and  gathers  it  back  with  increase  in  after  all 
only  a  very  short  time.  And  it  is  to  be  feared  that 
the  number  of  farmers  so  privileged  is  only  small,  if 
not  insignificant.  An  American  banker  of  note,  be- 
ing recently  in  Europe,  was  gTcatly  struck  with  the  very 
large  number  of  farmers'  promissory  notes  held  by  the 
Bank  of  France,  which  had  discounted  them.  Some 
of  them  were  for  large  sums,  the  majority  for  small, 
down  to  exceedingly  moderate  amounts  —  even  a  single 
dollar.  "  How  is  it,"  so  he  says  that  he  asked  himself, 
"  that  here  there  are  these  millions  and  millions  of 
francs  of  farmers'  *  paper,'  which  mean  fructifying 
money,  when  in  the  United  States  there  is  not  one  farm- 
er's promissory  note  so  held  that  I  am  aware  of  ? " 
And  that  result  witnessed  by  him,  so  it  will  be  well  to 
explain,  was  without  the  intervention  of  any  artificial 
"  Agricultural  Credit "  organisation.  For  the  Bank  of 
France  discounts  on  its  own  account  very  much  larger 
amounts  of  farmers'  bills  than  it  does  under  the  Credit 
Agricole  arrangement,  of  which  we  shall  still  have  to 
speak.  The  reason  for  American  backwardness  on  this 
point  is  that  agricultural  credit  is  not  yet  sufficiently 
understood  in  the  United  States  and,  beyond  this,  that, 
in  spite  of  the  access  given  to  it,  on  purely  personal 


14  CO-OPERATIVE  CREDIT 

grounds,  to  a  few  privileged  men  of  substance,  inde- 
pendently of  their  calling,  the  existing  organisation  of 
banking  business  places  serious  obstacles  in  the  way. 

Sufficient  has  already  been  said  to  indicate  that  there 
are  some  peculiar  features  about  agricultural  credit  to 
differentiate  it  from  other  credit.  Against  this  the 
elder  Blanqui's  famous  saying  is  often  quoted: — 
"  Agricultural  Credit  ?  Well,  that  is  just  credit  like 
any  other,"  To  a  certain  extent  no  doubt,  that  is  true. 
And  it  answers  all  those  specious,  far-fetched  pleas 
with  which  the  basing  of  agricultural  credit  upon  other 
foundations  than  those  which  are  necessary  for  credit 
of  all  sorts  is  defended.  There  is  far  too  much  of  this 
in  the  present  day.  It  is  thought  that  agricultural 
credit  must  be  assigned  special  sources  of  supply,  to  be 
dressed  up  in  some  taking  but  deceptive  hocus  pocus 
garb.  Credit  is  credit.  And  it  can  rest  upon  no  other 
foundation  than  that  of  adequate  security  and  responsi- 
bility acutely  brought  home.  That  is  the  one  ruling 
principle  for  credit  of  every  kind.  However,  in  point 
of  method  agricultural  credit  differs  from  ordinary 
credit  at  more  points  than  one. 

In  the  first  place  it  is,  as  a  rule,  required  for  a  longer 
period.  The  farmer's  money  returns  to  him,  generally 
speaking,  once  a  year.  Long  term  notes  and  bills  are 
not  favourites  with  bankers,  at  any  rate  for  discount- 
ing purposes.  But  the  farmer  can  agree  only  to  long 
terms  or  the  certainty  of  renewals  —  which  are  likewise 
not  in  favour  with  bankers.  There  is  somewhat  less 
difficulty  on  this  score  in  one  European  country  in 
which  agricultural  credit  has  secured  a  brilliant  record, 


WHY  CO-OPERATIVE  CREDIT  WANTED      15 

that  is,  in  Italy,  where  six  months'  bills  are  common. 
But  even  six  months  is  only  a  short  period  for  a  farmer. 
In  Italian  co-operative  banks  an  arrangement  is  very 
usual  which  admits  of  periodical  renewals  —  a  certain 
fixed  part  of  the  debt  being  repaid  each  time  —  which 
may  carry  the  life  of  the  bill  on  to  two  or  three 
years.  In  banks  which  are  based  upon  share  capital 
this  is  rendered  possible,  as  will  still  be  shown,  by  the 
combination  of  a  large  mass  of  non-agricultural  credit, 
ensuring  quick  returns,  with  a  smaller  volume  of  agri- 
cultural —  the  returns  in  which  are  slow.  Under  such 
arrangement  the  short  commercial  credit  readily  carries 
the  long  agricultural  along  with  it.  In  any  case  some 
special  arrangement  will  have  to  be  resorted  to,  to  meet 
the  difficulty.  And  that  would  scarcely  suit  ordinary 
bankers. 

But  another,  even  more  serious  drawback,  is  the  un- 
certainty of  the  farmer's  return  and  his  unwillingness, 
naturally  consequent  thereon,  to  pledge  himself  to  a 
given  date.  In  business  of  any  volume  certainty  of 
repa}Tnent,  when  the  bill  becomes  due,  is  imperative. 
This  difficulty  is,  like  the  other,  to  be  met  only  by  a 
possibility  of  frequent  renewals,  which  requires  some 
special  arrangement.  For  it  would  not  conveniently 
fit  in  with  present  banking  practice  and  it  is  not  to  be 
wondered  at  that  bankers  hesitate  to  accommodate  them- 
selves to  such  conditions. 

However,  these  two  difficulties  mark  only  one  point 
at  which  the  new  body  will  not  fit  into  the  old  banking 
garment.  In  truth  that  body,  as  it  has  developed,  is  so 
unlike  the  one  which  the  old  coat  was  made  for,  that,  to 


16  CO-OPERATIVE  CREDIT 

be  conveniently  suited,  it  requires  to  have  a  new  coat 
altogether  of  an  entirely  novel  cut.  We  shall  have  to 
recognise  the  fact  that  the  whole  economic  organisa- 
tion of  the  farmer's  world  is  markedly  different  from 
that  of  the  commercial  man's  world  and  therefore  de- 
mands different  treatment. 

It  is  sometimes  contended,  in  opposition  to  this,  that 
present  banking  arrangements  might  easily  be  so  ad- 
justed as  to  take  in  farmers.  In  support  of  this  plea 
it  is  urged  that,  in  the  first  place,  not  a  few  farmers  in 
the  United  States  actually  are  bankers  and  can  there- 
fore make  the  farmer's  vocational  peculiarities  paid  re- 
gard to  by  the  banks,  and,  in  the  second,  that  the  aver- 
age size  of  farms  is  larger  in  the  United  States  than  it 
is  in  Continental  Europe,  namely  138  acres  in  the  place 
of  20.  The  first  named  argument  can  in  the  best  case 
carry  us  only  a  very  short  way.  Its  application  is 
purely  exceptional  and  does  not  remove  all  difficulties 
where  it  does  take  place.  There  are  farmers  who  are 
at  the  same  time  also  stockholders  in  banks;  so  it  is 
quite  true.  But  that  does  not  mean  that  by  such  "  per- 
sonal union  "  the  two  callings  of  banking  and  farming 
are  brought  any  nearer  to  one  another,  but  simply  that 
a  certain  number  of  farmers  —  which  number  cannot 
be  large  in  proportion  to  the  totality  of  the  farming 
population  —  having  accumulated  a  certain  amount  of 
wealth,  have  fixed  upon  bankshares  as  a  profitable  in- 
vestment, just  as  doctors  or  lawyers  might  have  done. 
Secretary  Wilson  in  one  of  his  latest  reports  remarks 
hereon :  "  One  of  the  most  notable  outgrowths  of  sav- 
ings by  farmers  is  the  very  great  multiplication  of  small 


WHY  CO-OPERATIVE  CREDIT  WANTED      17 

national  banks  in  recent  years."  The  farmer-banker  no 
doubt  has  his  say  at  the  board  meetings,  provided  that 
he  happens  to  be  a  director.  And  he  will  obtain  credit 
from  his  own  bank,  or  from  any  other,  according  to  the 
supposed  measure  of  his  wealth.  But  that  is  credit 
for  his  person,  not  for  his  calling.  An  approximation 
of  the  two  callings  might  conceivably  be  facilitated  by 
such  conditions;  but  it  has  not  yet  taken  place.  Far- 
mers' investments  in  bank  shares  have  in  fact  carried 
farmers'  money  into  the  banks,  not  bankers'  money  into 
the  farms.  What  prevails  does  not,  to  make  a  compari- 
son, come  near  the  formal  arrangement  which  provides 
for  the  appointment  of  an  agricultural  "  regent  "  on  the 
Council  of  the  Bank  of  France,  with  express  instruc- 
tions to  see  that  the  needs  of  Agriculture  are  done 
justice  to. 

The  second  plea,  that  of  the  larger  size  of  American 
holdings,  proves  in  fact  nothing  at  all.  For  it  is  not 
the  size  of  a  farm,  but  its  value, —  or  rather,  in  this 
relation,  its  productiveness — which  determines  its 
title  to  credit.  The  European  twenty  acres  represent 
highly  perfected  intensive  farming,  where  markets  are 
handy  and  credit  is  organised,  and  where  the  value  of 
the  acre  goes  on  increasing.  It  is  interesting  to  note 
incidentally  what  a  considerable  difference  it  makes  to 
a  farm  where  credit  is  in  that  mobilised  condition. 
M.  Pierre  Caziot,  chief  technical  adviser  to  the  French 
Credit  Fonder,  in  a  book  recently  issued,^  quotes  in 
proof  of  this  the  instance  of  the  district  of  the  Brie, 
where  credit  is  well  organised  and  farmers  accordingly 

I  Pierre  Caziot,  La  Vfileur  de  la  Terre  en  France.    Paris,  1914. 


18  CO-OPERATIVE  CREDIT 

find  a  working  capital  of  SOO  francs  per  hectare  suffi- 
cient for  business  purposes,  being  able  to  obtain  the 
balance  by  credit,  whereas  in  other  districts  they  re- 
quire about  1,500  francs.  The  American  138  acres 
represent  for  the  most  part  slipshod  extensive  farming 
on  a  deteriorating  soil.  The  profit  of  farming,  as  has 
already  been  observed,  lies  in  the  excess  fertilisation, 
the  excess  labour  and  the  excess  yield,  beyond  a  certain 
minimum  point,  which  in  the  United  States  is  not 
commonly  exceeded.  However,  at  best,  the  average 
size  of  holdings  in  the  United  States  still  only  repre- 
sents comparatively  small  farming.  And  to  such  farm- 
ing banking  presents  itself  as  a  matter  of  some  diffi- 
culty. There  are  the  banking  customs,  unfamiliar  to 
our  sons  of  the  soil.  There  is  the  distance  —  which  is, 
in  the  United  States,  in  most  cases  greater  than  in 
Europe.  Credit,  to  be  of  use,  wants  to  be  readily  ac- 
cessible, without  loss  of  time.  And  there  is,  above  all 
things,  the  difficulty  of  security.  The  security  which 
the  farmer  has  to  offer  is  generally  understood  to  be 
good.  It  is  perhaps  less  good  in  the  United  States 
than  in  Europe,  because  there  is  more  shifting  among 
the  farming  population  and  greater  difficulty  in  follow- 
ing up  a  migrant  who  may  wish  to  conceal  himself. 
But  even  so  the  security  may  be  taken  to  be  inherently 
good.  However,  unfortunately,  it  is  not  bankable  in 
the  banker's  sense.  Its  precise  value  cannot  be  readily 
ascertained  —  except  it  be  a  matter  of  mortgage,  which 
had  for  the  present  better  be  excluded  from  our  con- 
sideration. And  the  security  cannot  be  easily  watched 
and  controlled.     If  our  farmer  is  to  be  able  to  raise 


WHY  CO-OPERATIVE  CREDIT  WANTED      19 

money  upon  it,  his  security  will  have  to  be  put  into  a 
different  shape,  so  as  to  become  bankable.  And  for 
this  a  new  contrivance  will  be  needed. 

That  is  the  crucial  point  of  the  whole  problem. 
Whoever  contends  that  by  means  of  "  a  few  slight 
changes"  the  system  of  national,  state  and  private 
banking  may  be  so  adapted  as  to  suit  the  farmer's  case, 
ignores  the  main  difficulty  to  be  grappled  with,  that  is, 
the  creation  of  some  new  bankable  security  within  the 
farmer's  reach.  Adapt  their  systems  as  they  will,  the 
national,  state  and  private  banks  still  must  necessarily 
remain  bodies  outside  the  farmer's  economy,  without 
sufficient  power  to  control  him,  except  it  be  by  preju- 
dicially cramping  him  in  his  business  —  bodies  with 
interests  distinct  from  and  opposed  to  his.  They  can- 
not be  expected  to  part  with  their  money  —  which  is 
really  not  theirs  at  all  —  to  a  borrower  except  in.  ex- 
change for  security  that  they  can  understand.  And 
security  that  they  can  understand  is  just  what  the  ordi- 
nary farmer,  stand  his  moral  worth  ever  so  high,  is  not 
in  a  position  to  give.  To  provide  convenient,  accessi- 
ble and  sufficient  credit  for  him  accordingly  some  new 
path  will  have  to  be  struck  out,  some  new  machinery  to 
be  devised. 

One  proof  of  this  is  to  be  found  in  the  large  resort, 
for  want  of  proper  banking  facilities,  practised  in  the 
United  States  to  decidedly  uneconomic  methods  of  bor- 
rowing, of  which  the  Southern  "  store  liens  "  are  no 
doubt  one  of  the  worst  specimens.  Under  this  system 
the  lender  of  money  provides  the  borrower  with  the 
necessary  cash   for   raising  his  crop,   which   becomes 


20  CO-OPERATIVE  CREDIT 

pledged  to  the  leuder,  who  in  not  a  few  cases  dictates 
even  what  crop  is  to  be  raised  and  in  what  way,  and 
to  whom  not  only  is  the  growing  crop  pledged,  but  with 
whom  the  borrower  is  also  committed  to  carry  on  all 
such  dealings  in  the  way  of  buying  and  selling  (at  the 
lender's  prices)  as  the  lender  may  direct.     If  all  things 
be  taken  into  account,  Mr.  George  K.  Holmes'  estimate 
of  40  per  cent,  as  the  average  rate  of  interest  paid  upon 
such  degrading  credit  is  likely  to  prove  rather  an  under 
than  an  over  estimate.     But  apart  from  the  rate  paid 
for  the  money  this  form  of  credit,   which,   like  the 
ancient  Eoman  ncxum,  ends  in  servitude  and  peonage, 
is  bound  to  stand  fatally  in  the  way  of  all  advance  to 
rational,  up-to-date  farming.     There  is  less  to  be  said 
against  the  mere  crop  lien,  in  the  case  of  which  the 
growing  crops  are  offered  as  pledge.     But  after  all 
even  that  is  uneconomic,  besides  being  cumbrous  and 
in  a  sense  derogatory.     Nor  yet  can  chattel  mortgages 
be  held  a  convenient  method  of  providing  for  credit. 
Mortgage  credit  is  also  often  abused  —  raised,  because 
it  is  convenient,  for  purposes  for  which  it  is  assuredly 
not    legitimate,    as    burdening   the   borrower    without 
bringing  improvement  to  the  land  pledged.     The  fa- 
vourite form  of  credit,  however,  seems  to  be  that  taken 
from  dealers  and  merchants,  sometimes  in  the  shape 
of  lean  stock  to  be  fattened  for  them,  more  frequently 
in  the  shape  of  time  given  for  the  payment  of  goods 
till  after  the  harvest.     Were  farmers  to  calculate  what 
such  credit,  which  seems  to  them  an  act  of  pure  kind- 
ness and  generosity,  really  costs  them,  many  of  them 
would  stand  aghast  at  the  unexpected  discovery  and 


WHY  CO-OPERATIVE  CREDIT  WANTED     21 

there  is  probably  none  who  would  not  subscribe  to  the 
declaration  of  the  want  of  a  new  kind  of  credit. 

First  attention  has  here  been  given  to  Agriculture, 
because  that  is  the  calling  for  which  the  necessity  of 
more  ample  credit  is  most  keenly  and  generally  real- 
ised. Restoration  of  exhausted  fertility,  improvement 
of  Agriculture  to  the  point  of  assured  remunerative- 
ness,  are  felt  as  crying  wants.  However,  Agriculture 
is  not  by  any  means  the  sole  claimant  by  inherent  right 
for  more  popularised  credit.  The  very  existence  of 
such  institutions  as  "  Remedial  Loan  Societies,"  "  Mor- 
ris Banks,"  "  A  Bank  Chain  to  kill  Usury,"  and  others 
which  dispense  small  credit  in  a  not  strictly  economic 
way,  provide  telling  proof  that  there  is  a  want  to  be 
met  in  a  wider  sphere.  Such  institutions  are  not  in- 
tended to  be  purely  charitable.  They  were  designed 
to  help  lame  dogs  over  stiles  —  not  to  give  doles,  but 
to  make  repayable  advances  to  men  and  women  who 
under  ordinary  circumstances  could  earn  their  own  liv- 
ing but  may  be  for  the  moment  placed  in  a  difficulty. 
However,  they  lend  such  aid  under  conditions  which 
can  scarcely  fail  to  tend  to  the  weakening  of  character 
and  the  breeding  of  improvidence.  This  may  be  predi- 
cated even  of  the  "  Morris  banks,"  the  scheme  of  which 
appears  to  have  been  suggested  by  the  useful  "  Build- 
ing and  Loan  Associations."  However,  the  relief 
which  they  bring  is  at  best  limited.  It  does  not  lay  a 
foundation  for  a  lasting  improvement,  which  may  be 
depended  upon.  And  they  distinctly  place  two  differ- 
ing interests  in  opposition  to  one  another  —  one  of 
which,  having  the  command  of  the  money  and  a  divi- 


22  CO-OPERATIVE  CREDIT 

dend  to  earn,  may  very  conceivably  exploit  the  other. 
There  are  cases,  of  course,  in  which  the  schemes  do 
good,  in  which  a  little  timely  help,  rendered  to  a  good 
man,  will  enable  the  latter  to  right  himself.  But  in 
the  majority  of  cases,  so  it  is  to  be  feared,  the  loss  to 
the  man  himself,  by  enfeebling  fibre  and  power  of  ef- 
fort, and  accustoming  him  to  look  outside  himself  for 
help,  is  likely  to  prove  greater  than  the  gain  to  be  got 
out  of  the  transaction.  And  that  is  certainly  likely  to 
be  the  result  to  the  community. 

There  can  be  no  question  that  outside  the  agricul- 
tural calling  there  are  millions  of  men  and  w^omen  to 
whom  access  to  reasonable,  non-degrading  credit  at  fair 
rates  would  be  a  material  boon,  down  to  the  wage- 
earning  working  man  who,  as  would  appear  at  first 
glance,  is  not  likely  to  have  any  occasion  for  productive 
credit,  since  his  labour  brings  him  in  its  proper  return 
promptly  in  the  shape  of  wages,  on  which  he  may  live. 
However,  he  may  have  opportunities  of  economising 
by  purchasing  for  cash  and  in  large  quantities,  at  a 
saving  very  much  larger  than  the  interest  to  be  paid 
for  a  loan,  what  without  the  use  of  such  money  he 
would  have  to  buy  in  small  quantities,  it  may  be  for 
credit  —  shop  credit.  And  reproduction  of  the  money 
by  economy  is  fully  as  legitimate  an  object  for  a  loan 
as  producing  new  values.  And  our  working  man  may 
have  belongings,  to  whom  the  purchase  of  tools,  imple- 
ments or  raw  material  with  hired  money  would  open 
a  prospect  of  self-supporting  emplo\'ment  fully  war- 
ranting the  temporary  interest  to  be  charged.  Our 
man  may  also  nourish  the  ambition  of  rising  in  the 


WHY  CO-OPERATIVE  CREDIT  WANTED      23 

social  scale.  He  may  see  his  way  to  becoming  a  self 
employer,  in  his  own  or  in  some  other  calling.  He  will 
be  independent  then  and  able  to  earn  more.  He  will 
be  a  more  profitable  citizen  to  his  country.  Reckon 
up  the  amount  of  distress  that  might  be  turned  into 
prosperity  if  only  people  possessing  the  capacity  and 
having  the  chance  could  readily  obtain  the  temporary 
use  of  a  little  money,  to  enable  them  to  take  advantage 
of  their  opportunities !  It  must  total  up  to  a  big  sum. 
And  have  we  not  the  small  tradesman  still  with  us, 
showing  no  sort  of  inclination  to  allow  himself  to  be 
crowded  out  by  the  big  emporium  ?  Statistics  demon- 
strate that,  although  large  industry,  which  by  its  big- 
ness forces  itself  most  upon  public  attention,  goes  on 
steadily  increasing  and  expanding,  in  some  cases  by 
phenomenal  enlargements,  small  trade  nevertheless 
manages  by  its  side  still  successfully  to  hold  its  own.^ 
To  the  small  tradesman,  working  with  little  capital, 
and  often  bound  to  give  credit  to  his  own  customers, 
more  readily  accessible  credit  for  himself  would  in 
many  cases  be  an  enormous  help.  And  there  are  peo- 
ple still  old-fashioned  enough  in  their  views  to  hold 
that  a  country  is  all  the  happier,  and  likely  to  be  the 
more  prosperous,  for  possessing  a  strong,  self-support- 
ing middle  class,  people  working  for  their  own  account, 
not  all  rich  masters  or  dependent  wage  earners. 

The  United  States  are  well  supplied  with  banks  of 

1  See  S.  N.  O.  North's  observations  in  Plans,  Methods  and 
Scope  of  the  Twelfth  Census  of  Manufactures,  torn,  vii,  and 
M.  Yves  Gujot's  most  interesting  paper  in  the  Bulletin  de  I'lnsti- 
tut  International  de  Statistique,  t.  xvii  (Copenhagen).  The 
last  named  paper  deals  with  the  relative  progress  of  large  and 
small    manufactures    in    France,    Belgium,    Denmark    and    the 


24  CO-OPERATIVE  CREDIT      $ 

all  pretensions.  Their  system  of  free  banking  has 
filled  their  towns,  down  to  very  little  ones,  with  bank- 
ing shops  of  all  kinds.  However  those  banks,  many  as 
they  are,  and  varied  as  they  are,  cannot  possibly  supply 
more  than  a  mere  fraction  of  all  the  demand  that  may 
conceivably  arise,  once  the  benefits  of  accessible  credit 
are  fully  understood,  owing  to  the  inherent  differences 
in  their  own  ways  and  those  of  their  would-be  custo- 
mers, and  the  absence  of  any  common  standard  of 
value  of  security.  Security  there  must  be,  or  there 
can  be  no  credit.  However  security  of  the  kind  at 
present  recognised  by  bankers  these  people  whom  we 
are  here  thinking  of  have  not  got.  There  is  accord- 
ingly a  gulf  between  the  two  classes,  which  has  thus  far 
remained  unbridged.  What  is  required  is  a  link  to 
bring  them  into  contact  with  one  another,  a  bond  to 
enable  them  to  do  business  with  one  another.  A  mere 
setting  up  of  new  counters  will  not  accomplish  the  ob- 
ject, because  it  leaves  the  two  classes  still  apart,  still 
unable  to  hitch  into  one  another.  So  far  as  number  of 
counters  goes,  there  are  probably  enough  already. 
What  is  wanted  is  the  effecting  of  a  union  of  interests, 
which  will  give  the  creditor  a  hold  upon  his  debtor  and 
enable  him  to  appraise  the  debtor's  financial  value  and 
discover  the  financial  character  of  his  proposed  trans- 
action,  without   damaging  the  borrower. 

Such  a  link  to  unite  interests,  such  a  bridge  to  span 
the  dividing  chasm,  has  been  found  in  Co-operation. 
It  is  Co-operation  which  has  succeeded  in  bringing  into 

United  States.  The  general  review  is  therefore  sufficiently  com- 
prehensive. 


WHY  CO-OPERATIVE  CREDIT  WANTED      25 

effective  contact  money  and  the  want  of  it  —  other 
people's  money  as  well  as  that  of  the  borrowers  them- 
selves viewed  collectively;  which  has  succeeded  in  ap- 
praising the  financial  trustworthiness  of  those  in  search 
of*  credit,  and  in  making  bankable  a  security  which 
previously  was  only  potential  and  latent.  It  has  done 
this  on  a  scale  which  to  the  newcomer  appears  down- 
right fabulous,  in  a  number  of  countries,  practically 
speaking  all  countries  of  the  European  Continent,  and 
more  besides.  For  Co-operative  Credit  has  begun  to 
blossom  modestly  also  in  Canada,  in  Mauritius,  in 
Japan,  and  above  all  things,  much  more  lusciously,  in 
British  India,  where,  need  being  great  and  people  gen- 
erally honest  —  and  still  well  attached  to  one  another 
in  what  is  a  survival  of  the  historic  "  village  commun- 
ity "  —  it  has  made  truly  astounding  strides  and  has 
developed  with  a  rapidity  hitherto  not  equalled  any- 
where else  in  the  early  stages.  Natives  who  see  its 
work  have  pronounced  it  "  the  greatest  blessing  that 
the  Indian  people  have  ever  yet  received." 

What  an  enormous  financial  power  Co-operative 
Credit,  bringing  welcome  relief  to  husbandman  and 
manufacturer,  tradesman  and  wage  earner,  has  grown 
to  be  may  be  gathered  from  the  fact  that  of  the  eighteen 
thousand  or  so  co-operative  credit  societies  existing  in 
Germany,  less  than  a  thousand  alone  —  but  by  far  the 
most  important,  in  one  Union  —  lend  out  annually 
something  like  a  billion  and  a  half  of  dollars. 

The  example  of  India  shows  among  other  things  — • 
which  is  an  important  fact  to  bear  in  mind  —  how 
adaptable  Co-operative  Credit  is  to  most  widely  differ- 


26  CO-OPERATIVE  CREDIT 

ing  surroundings.  We  could  not  have  one  stereotyped 
method  of  its  application,  because  that  would  crush  all 
life  out  of  the  institution.  In  differing  circumstances 
it  must  be  able  to  assume  different  shapes.  That  is 
why  it  is  so  very  important  to  get  hold  of  the  principles 
of  the  institution  rather  than  of  the  mere  methods  of 
application,  which  have  of  late  been  rather  too  freely 
advertised,  as  if  they  embodied  the  spirit  of  the  scheme. 
There  must  be  variety  of  method,  or  all  cases  will  not 
be  met.  And  there  can  be  such ;  for  acceptance  of  the 
principle  is  fully  consistent  with  a  great  variety  of  ap- 
plications. You  cannot  in  different  countries  follow 
one  hard  and  fast  rule.  The  mere  fact  that  the  laws 
bearing  upon  the  matter  are  in  various  countries  essen- 
tially different  in  their  demands,  precludes  that.  How- 
ever, beyond  that,  every  country  has  its  own  idiosyn- 
cracies,  its  own  customs  and  usages,  to  which  it  is 
wedded;  and  according  to  its  habits  and  traditions 
must  be  the  method  adopted.  The  consequence  of  ad- 
hering rigidly  to  another  country's  ways  may  be  to 
some  extent  discerned  in  Belgium,  where  at  the  outset 
German  rules  were  adopted  down  to  the  very  letter. 
After  a  period  of  highly  satisfactory  development  — 
for  the  movement  was  wanted  —  results  are  showing 
signs  of  giving  way.  In  Italy  M.  Luzzatti  adopted  the 
German  principle,  but  put  it  into  an  Italian  garb,  and 
the  result  has  been  steady  and  vigorous  progress. 
Austria  is  so  much  alike  to  Germany  in  the  habits  of 
its  people,  that  the  original  German  system  could 
scarcely  fail  to  answer  equally  well,  although  on  a  re- 
duced scale.     But  in  Kussia,  for  instance,  very  differ- 


WHY  CO-OPERATIVE  CREDIT  WANTED      27 

ent  methods  proved  necessary,  such  as  have  not  yet 
been  carried  to  extreme  perfection,  but  as  promise  in 
the  end  to  answer.  The  most  striking  departure  from 
the  original  methods,  however,  have  proved  needful  in 
India,  where  of  course  co-operators  find  entirely  novel 
circumstances  and  an  entirely  different  population  to 
deal  with.  Nevertheless  in  India  even  more  than  in 
other  countries  has  co-operative  credit  shown  itself  ex- 
ceedingly adaptable  in  its  methods.  Methods  are 
really  of  secondary  importance.  The  main  point  is, 
to  adhere  faithfully  to  the  co-operative  principle,  with- 
out which  history  has  shown  that  co-operative  credit 
cannot  be  applied  to  good  purpose.  It  produces  tares 
instead  of  wheat  —  tares  which  show  remarkably  well 
in  their  luscious  and  exuberant  gi-een,  but  which  at 
the  end  of  the  season  yield  no  wholesome  grain. 

There  is  probably  no  other  economic  or  financial 
power  which  has  produced  equally  truly  grandiose  re- 
sults for  good.  Co-operative  credit  has  scattered  riches 
in  abundance  over  the  field  over  which  its  horn  of 
plenty  has  been  poured  out;  and,  while  scattering 
riches,  it  has  at  the  same  time  also  improved  and 
strengthened  character,  made  virtues  other  than  eco- 
nomic to  blossom,  sharpened  wits  and  filled  men's  minds 
with  new  economic  ideas,  which  in  due  course  have 
borne  rich  fruit.  In  a  word,  it  has  proved  an  unspeak- 
able benefit  to  those  who  have  practised  it  and  to  the 
world  around  them.  It  is  time  that  the  United  States 
took  up  this  weapon  of  economic  warfare,  to  fight  with 
it  Usury  and  Poverty  and  the  other  social  and  economic 
evils  which  spring  from  Need.     It  is  in  a  manner  new 


28  CO-OPERATIVE  CREDIT 

to  the  population  of  the  great  republic  and  will  there- 
fore require  to  be  carefully  explained.  At  first  sight 
it  may  appear  in  its  demands  to  run  counter  to  some 
ingrained  American  habits.  Probably  the  fear  of 
this  is  greater  than  the  reality.  The  same  apprehen- 
sion has  been  entertained  in  almost  every  country  into 
which  co-operative  credit  has,  all  the  same,  eventually 
found  its  way,  to  prosper  there.  In  every  instance 
there  was  supposed  to  be  "a  lion  in  the  way."  How- 
ever the  people  of  the  United  States  have  already  shown 
themselves  not  without  their  own  peculiar  co-operative 
proclivities.  There  is,  so  one  should  remember,  a  good 
deal  of  "  Co-operation "  practised  in  their  country 
which  does  not  square  with  the  ideas  of  European  co- 
operators,  though,  surely  enough,  it  means  "operating 
together  " —  for  some  object  very  distinctively  of  gain. 
However,  to  state  one  conspicuous  example,  the  remark- 
able success  of  the  ''  Building  and  Loan  Associations," 
which  in  principle  approach  co-operative  action,  seems 
to  indicate  that  there  is  at  any  rate  a  latent  predisposi- 
tion to  co-operative  methods  wherever  a  need  for  the  ap- 
plication of  such  comes  to  be  realised.  The  United 
States  have  also,  in  point  of  fact,  already  possessed 
embryo  co-operative  credit  societies  of  humble  preten- 
sions, of  the  organisation  of  which  nothing  is  known 
to-day.  They  existed  before  the  Civil  War  and  came 
to  an  end  with  its  outbreak  —  just  as  many  little  but 
promising  co-operative  concerns  in  France  came  to  a 
sudden  collapse  with  the  outbreak  of  the  Franco-Ger- 
man war.  But  it  is  known  that  in  their  humble  way 
these  little  societies  —  a  mere  handful  —  proved  dis- 


WHY  CO-OPERATIVE  CREDIT  WANTED      29 

tinctly  successful,  with  the  exception  of  those  of  New 
York,  which  had  dabbled  in  speculation  and  came  to 
grief  over  it. 

By  reason  of  its  results  Co-operative  Credit  has  in- 
gratiated itself  wherever  it  has  gone.  It  is  found 
worth  cultivating  and  even  pushing.  Its  methods  are 
varied.  Its  principle  is  one.  It  is  proposed  to  ex- 
plain such  principle  in  the  succeeding  chapter,  and 
after  that  to  set  forth  the  application  which  it  has 
found  in  various  methods,  in  order  that  "  all  things 
being  proved,  that  may  be  held  fast  which  is  good  " 
and  suitable  to  the  new  surroundings. 


CHAPTER  II 

GENERAL    PEJNCIPLES    OF    CO-OPEEATIVE    CEEDIT 

The  task  set  to  Co-operative  Credit  is  —  as  has  al- 
ready been  explained  —  to  make  potential  security  ef- 
fective, in  order  that  it  may  be  brought  to  form  an 
acceptable  pledge  for  a  lender  to  lend  upon.  That  pre- 
supposes that  the  elements  for  such  security  are  in 
existence,  and  it  also  suggests  that  there  is  practically 
no  other  security  available,  such  as  capitalists  are  now 
in  the  habit  of  recognising.  As  the  most  appropriate 
elements  for  creating  a  security  we  may  set  down  trust- 
worthiness of  character,  to  justify  the  fides  to  be 
claimed;  and  a  prospective  employment  which  will 
justify  the  loan  on  financial  grounds. 

The  story  is  told  of  one  of  our  great  contractors  of 
the  past  generation,  a  deservedly  most  successful  man, 
that  he  began  life  as  a  ganger,  whose  ability  as  well 
as  his  uprightness  of  character  soon  came  to  be  recog- 
nised by  those  with  whom  he  was  brought  into  contact. 
He  happened  one  day  to  be  offered  a  highly  promising 
contract,  for  which  he  possessed  the  ability,  but  not  the 
means.  For  the  necessary  money  he  applied  to  some 
bankers,  to  whom  he  was  personally  well  known.  They 
were  aware  both  of  his  ability  and  of  his  uprightness. 
But  those  qualities  alone  would  not  have  disposed  them 

to  let  him  have  the  cash.     However,  he  unfolded  his 

30 


PRINCIPLES  OF  CO-OPERATIVE  CREDIT      31 

scheme.  And,  seeing  that  it  was  a  good  one,  on  those 
two  grounds  combined,  which  appeared  to  them  to  con- 
stitute a  fair  security,  the  bankers  lent  him  what  he 
wanted  —  and  that  was  put  to  admirable  use  and  hon- 
estly repaid. 

Here  we  have  the  two  main  elements  out  of  which 
co-operative  security  may  be  manufactured,  to  wit, 
trustworthiness  of  character  and  profitable  employment 
of  the  loan.  Given  these  —  and  made  secure  —  the 
lender  may  count  upon  honest  repayment,  which  is  of 
course  all  that  security  is  intended  to  assure.  Char- 
acter alone  has  become  a  favourite  ground  with  bank- 
ers to  lend  upon.  But  they  really  as  a  rule  know  what 
the  applicant  for  credit  is  "  worth  "  and  there  is  gen- 
erally a  substratum  of  substantiality  to  support  char- 
acter. It  is  on  such  ground  that  substantial  farmers 
in  the  United  States  —  whose  ready  command  of  bank- 
ers' credit  is  sometimes  quoted  as  disproving  the  af- 
firmed necessity  of  a  more  popular  form  of  credit  — 
obtain  their  loan  money.  However,  theirs  is  not  the 
position  of  the  great  mass  of  farmers  —  and  others  — 
for  whom  a  new  kind  of  credit  is  demanded.  These 
people  may  or  may  not  be  possessed  of  sufiicient  be- 
longings to  form  a  practicable  "  collateral."  But  they 
are  not  in  the  same  touch  with  bankers  capable  of  lend- 
ing, and  could  scarcely  place  themselves  in  such  touch 
without  paying  more  for  such  advantage  than  the  ad- 
vantage might  be  found  worth. 

Therefore  it  becomes  necessary  in  their  case  —  the 
case  of  millions  —  to  provide  some  substitute  for  the 
personal   knowledge  here   spoken  of,   to  constitute  a 


32  CO-OPERATIVE  CREDIT 

bridge  across  tbe  separating  gulf,  which  will  answer 
the  same  purpose  as  personal  acquaintance  with  head- 
quarters. That  substitute  is  the  creation  of  an  inter- 
mediate body  between  the  borrower  and  the  original 
lender,  financially  strong  enough  by  its  collective  guar- 
antee to  secure  the  latter;  and,  beyond  this,  in  a  posi- 
tion to  exact  proper  employment  and  enforce  prompt 
repayment  to  itself  on  the  part  of  the  former.  The  last 
named  is  the  main  security.  The  intermediate  body 
is  to  be  judge  both  of  the  propriety  of  the  emplo;vTnent 
given  to  the  loan  and  of  the  quality  of  the  borrower 
and,  having  secured  itself  in  these  two  essential  re- 
spects, it  is  in  its  turn  to  become  surety  for  the  loan  to 
the  prime  provider  of  the  money. 

There  is  a  remarkably  telling  example  of  the  efficacy 
of  this  interlinking  of  interests  in  banking  history. 
Scotland  has  long  taken  prominent  rank  among  bank- 
ing countries  by  means  of  the  excellence  of  its  banking 
institutions,  which  have  been  mainly  instrumental  in 
reclaiming  that  country  from  what  one  of  its  own  sons, 
the  late  II.  Dunning  Macleod,  has  called  "  the  lowest 
state  of  barbarism,"  to  "  its  present  proud  position," 
with  farming,  industry,  shipping  at  the  pitch  of  per- 
fection. It  is  popularised  credit,  "  Cash  Credit,"  as 
it  is  called  —  a  system  very  like  the  English  "  Over- 
draft," but  "  reduced  to  a  much  more  regular  system, 
and  governed  by  its  own  methodical  rules  and  appro- 
priated to  certain  practical  purposes,"  which  has  ac- 
complislied   this.^     Cash   credit   was  not   indeed  orig- 

1  See  Henry  Dunnin{»  Macleod,  The  Theory  and  Practice  of 
Banking.     London,  1875. 


PRINCIPLES  OF  CO-OPERATIVE  CREDIT      33 

inally  introduced  with  anything  like  such  an  object 
in  view.  Scotch  banks  —  of  which  there  were  at  the 
time  very  few  —  were  allowed  the  privilege  of  issuing 
an  unlimited  amount  of  bank  notes.  Early  in  the 
eighteenth  century  (beginning  in  ITOJ:)  the  Bank  of 
Scotland  —  which  was  the  old  leading  bank  —  began 
the  issue  of  one  pound  notes,  for  which  in  the  ordinary 
run  of  business  it  could  not  then  find  adequate  em- 
ployment. To  make  the  comparative  glut  of  paper 
worse,  in  1727  a  rival  bank  was  set  up,  in  the  Whig 
interest  —  the  Bank  of  Scotland  being  Jacobite  in  its 
tendencies  —  with  the  same  powers  and  an  understood 
injunction  to  "  cut  out "  the  older  bank  as  much  as  it 
could.  To  do  this,  the  new  institution,  the  Koyal  Bank 
of  Scotland,  hit  upon  the  device  of  offering  credit  in  its 
one  pound  notes  to  whoever  would  provide  adequate 
security  —  mainly  in  the  shape  of  sureties.  Agencies 
were  opened  all  over  the  kingdom  and  the  banknotes 
were  offered  freely.  From  this  new  practice,  which 
as  a  matter  of  course  other  banks  soon  copied,  has 
sprung  up  that  admirably  organized,  widely  diffused 
system  of  Scotch  banking,  in  which  productive  credit 
plays  a  leading  part.  However,  it  at  the  same  time 
greatly  stimulated  deposit  banking.  It  became  a  com- 
mon practice,  even  among  small  men,  to  "  keep  a 
banker."  And  the  unlimited  issue  of  notes,  with  re- 
gard to  which  fears  might  well  have  been  entertained, 
was  soon  found  to  correct  itself.  Every  bank  naturally 
made  it  its  aim,  to  place  as  many  of  its  own  notes  as 
possible  on  the  market,  and  at  the  same  time  to  with- 
draw the  notes  of  its  rivals.     So  one  bank  came  to  col- 


34  CO-OPERATIVE  CREDIT 

lect  all  the  notes  of  the  other  banks  that  it  could,  and 
to  present  them  for  payment.  There  were  fixed  set- 
tling days  for  such  exchanges,  and  there  was  one  grand 
settling  day,  at  Whitsuntide,  when  notes  were  often 
hard  to  be  got  by  the  public,  until  the  gTeat  cashing  ex- 
change was  completed.  Thus  competition  effectually 
kept  out  what  evils  might  have  been  looked  for  from 
unlimited  issue.  The  great  development  of  banking, 
which  is  peculiar  to  Scotland,  and  which  serves  alike 
to  stimulate  enterprise  and  to  keep  specie  in  the  banks, 
is  therefore  to  a  very  considerable  extent  distinctly 
traceable  to  Cash  Credit. 

The  object  of  banks,  when  practising  cash  credit,  be- 
ing to  place  as  much  of  their  paper  money  in  circula- 
tion as  might  be,  without  risk,  they  were  bound  —  more 
particularly  under  the  pressure  of  competition  —  to 
make  things  easy  for  intending  borrowers  —  up  to  one 
point.  Every  one  was  to  be  made  welcome  —  but  there 
must  in  every  case  be  adequate  security.  And  as  re- 
gards security,  a  bank  could  obviously  not  very  well 
dabble  in  pledge  credit,  which  might  have  proved  ex- 
ceedingly inconvenient  to  itself.  It  must  have  surety- 
ship of  such  a  kind  that  in  the  event  of  one  man  failing 
to  repay,  there  would  be  another  to  be  held  responsible, 
so  that  in  any  case  the  value  to  be  seized  in  satisfaction 
would  take  the  shape  of  money.  As  respects  the 
amount  of  security  to  be  taken,  Scotch  bankers,  being 
eminently  practical  men,  did  not  allow  themselves  to 
be  troubled  with  such  fancies  as  are  not  a  little  in  vogue 
at  the  present  time,  binding  themselves  to  fixed  me- 
chanical   conditions.     They    understood    well    enough 


PRINCIPLES  OF  CO-OPERATIVE  CREDIT      35 

that  in  matters  of  credit  every  case  must  be  judged 
by  itself  and  on  its  own  merits.  Accordingly  they 
asked  in  every  case  for  just  as  many  sureties  as  might 
to  themselves  appear  called  for  —  one,  or  two,  or  six, 
or  more.  There  have  been  as  many  as  ten.  Scotch 
farmers  and  tradespeople,  on  the  other  hand,  were  far 
too  canny  to  allow  themselves  to  be  frightened,  as  peo- 
ple nowadays  appear  disposed  to  be,  by  such  precau- 
tions. They  wanted  the  money;  they  knew  after  cal- 
culation that  it  would  be  worth  their  while  to  borrow 
it.  And  so  they  willingly  provided  the  security  re- 
quired. The  result  is  what  we  now  see  in  Scotland. 
''  The  far-famed  agriculture  of  the  Lothians,"  so  writes 
Macleod,  "  the  manufactures  of  Glasgow  and  Paisley, 
the  unrivalled  steamships  of  the  Clyde,  are  its  own 
proper  children"  (the  children  of  Cash  Credit).  "A 
friend  of  mine,"  so  Mr.  Fowler  stated  some  time  ago 
at  the  Bankers'  Institute,  (in  London)  "was  travelling 
in  one  of  the  southern  counties  of  Scotland  and  there 
was  pointed  out  to  him  a  valley  covered  with  beautiful 
farms.  My  friend  was  an  Englishman,  and  his  com- 
panion, who  was  a  Scotchman,  pointed  down  the  valley 
and  said :  '  That  has  all  been  done  by  the  banks,'  in- 
timating his  strong  opinion  that  but  for  the  banking 
system  of  Scotland  (the  cash  credit)  the  development 
of  agriculture  would  be  in  its  infancy  compared  to 
what  it  is  now." 

When,  something  like  twenty  years  ago,  I  lectured 
in  a  committee  room  of  the  British  House  of  Commons 
upon  co-operative  banking,  the  late  Mr.  Beith,  a  Scotch 
member  —  and  if  I  mistake  not,  at  that  time  chairman 


36  CO-OPERATIVE  CREDIT 

of  the  Glasgow  Chamber  of  Commerce  —  patted  me 
approvingly  on  the  sho^^lder  and  said  words  to  this 
effect :  "  You  are  right ;  I  am  a  wealthy  man  now ;  it 
is  a  cash  credit  of  £2,000  which  I  received  when  I  was 
young,  which  has  made  me  so ;  we  want  to  do  for  those 
less  well  off  than  ourselves  what  has  been  done  for 
us." 

In  1826,  when  the  currency  question  was  so  promi- 
nently before  the  public  in  Great  Britain  that  either 
House  of  Parliament  appointed  a  Select  Committee  to 
inquire  into  it,  those  Committees  reported  specifically 
upon  Cash  Credit  in  the  following  way :  — "  There 
is  one  part  of  this  system  which  is  stated  by  all  wit- 
nesses (and,  in  the  opinion  of  the  Committee,  is  very 
justly  stated)  to  have  had  the  best  effects  upon  the 
people  of  Scotland,  and  particularly  upon  the  middle 
and  poorer  classes  of  society,  in  producing  and  en- 
couraging habits  of  frugality  and  industry.  The  prac- 
tice referred  to  is  that  of  cash  credits  .  .  .  From  the 
facility  which  these  cash  credits  give  to  all  the  small 
transactions  of  the  country,  and  from  the  opportuni- 
ties which  they  afford  to  persons  who  begin  business 
with  little  or  no  capital  but  their  character,  to  employ 
profitably  the  minutest  products  of  their  industry,  it 
cannot  be  doubted  that  the  most  important  advantages 
are  derived  in  the  whole  community  .  .  .  The  wit- 
nesses whose  evidence  we  have  quoted  stated  that  they 
calculated  that  the  number  of  persons  who  had  cash 
credits  granted  to  them  amounted  to  about  10,000  or 
11,000,  and,  as  the  average  number  of  securities  to 
each  bond  might  be  taken  as  three,  there  were  about 


PRINCIPLES  OF  CO-OPERATIVE  CREDIT      37 

30,000  persons  interested  as  securities,  so  that  the  total 
number  of  persons  at  that  period  interested  in  the  sys- 
tem was  at  least  40,000.  The  banks  were  then  supposed 
to  be  under  engagements  of  that  sort  to  the  amount 
of  £6,000,000,  of  which  about  two  thirds  were  drawn 
out "  .  .  .  "  the  practical  effect  of  which  is,"  so  says 
one  witness  quoted,  "  that  the  sureties  do  in  a  greater  or 
less  degTee  keep  an  attentive  eye  upon  the  future  trans- 
actions and  character  of  the  person  for  whom  they  have 
thus  pledged  themselves;  and  it  is  perhaps  difficult  for 
those  who  are  not  intimately  acquainted  with  it  to  con- 
ceive the  moral  check  which  is  afforded  upon  the  con- 
duct of  the  members  of  a  great  trading  community, 
who  are  thus  directly  interested  in  the  integrity,  pru- 
dence and  success  of  each  other.  It  rarely,  indeed,  if 
ever,  happens  that  banks  suffer  loss  by  small  cash  ad- 
vances." "  This  system,"  so  the  Report  quoted  con- 
tinues, "  has  a  great  effect  upon  the  moral  habits  of 
the  people,  because  those  who  are  securities  feel  an 
interest  in  watching  over  their  conduct;  and  if  they 
find  that  they  are  misconducting  themselves,  they  be- 
come apprehensive  of  being  brought  into  risk  and  loss 
from  having  become  their  sureties;  and  if  they  find 
they  are  so  misconducting  themselves,  they  withdraw 
the  security."  It  is  the  linking  together  of  close  local 
and  personal  knowledge,  which  can  discriminate  be- 
tween good  cases  and  bad,  deserving  borrowers  and 
undeserving,  the  joining  of  interest,  of  responsibility 
entered  into,  with  the  power  of  enforcing  responsibility 
in  others,  which  supply  backbone  to  the  system.  There 
must  be  touch,  power  of  control,  knowledge  of  mem- 


38  CO-OPERATIVE  CREDIT 

bers  among  themselves,  and  a  common  interest,  which 
carries  the  security  of  the  pledge  given  far  beyond  what 
a  writ  or  a  summons  could  do. 

Iv'ow  all  this  is  excellent  so  far  as  it  goes.  But  it 
applies  in  each  case  to  one  transaction  only.  As  a 
rule  it  means  that  a  man,  in  whose  honesty  and  capacity 
for  business  his  bondsmen  have  faith,  obtains  a  stand- 
ing overdraft,  rather  large  in  comparison  with  his  im- 
mediate requirements,  to  set  him  up  in  business.  That 
overdraft  will  run  on,  if  the  borrower  conducts  him- 
self well,  till  he  sees  his  way  to  throw  off  the  burden, 
as  an  owner  of  land  might  throw  off  a  mortgage  debt. 
It  does  not  correspond  to  the  credit  of  a  merchant,  who 
draws  a  bill  to  take  up  money  just  as  he  wants  it  and 
gets  rid  of  his  debt  as  soon  as  the  transaction  is  com- 
pleted. There  is  no  "  quickness  "  about  it  —  except 
that  the  account  must  not  remain  unused  —  no  elastic- 
ity, no  rapid  reproductiveness.  It  is  highly  useful  in 
its  way.  But  it  does  not  supply  all  that  is  wauted. 
And  in  many  cases  that  are  otherwise  good  it  must  re- 
main impracticable.  For  it  is  not  every  one  to  whom 
bondsmen  would  be  prepared  to  guarantee  an  overdraft, 
which  might — just  like  possession  of  the  money  — 
prove  a  temptation  to  improvident  employment.  It  is 
here  presumed  that  we  want  to  help  smaller  men  than 
those  who  in  Scotland  benefit  by  cash  credit,  as  well  as 
men  of  the  same  standing;  and  also  that  we  want  to 
help  them  to  occasional  credit  as  well  as  to  a  standing 
overdraft.  Cash  credits  for  the  most  part  —  still,  as 
in  1826  —  nm  into  $1,000  to  $2,500.  They  mount  up 
to  considerably  larger  sums,  but  they  practically  never 


PRINCIPLES  OF  CO-OPERATIVE  CREDIT      39 

descend  below  $500,  never  at  all  below  $250.  Such 
credits,  practically  for  the  endowment  of  a  business, 
would  help  us  only  up  to  a  limited  point.  Our  smaller 
man  may  be  perfectly  safe  to  be  trusted  with  a  loan 
for  a  certain  approved  employment  under  conditions 
which  make  the  employment  of  the  loan  itself  a  pledge 
for  repa}Tiient,  whereas  it  would  be  risky  to  guarantee 
him  an  overdraft.  Overdrafts,  practised  avowedly  for 
convenience  —  have  under  unsuitable  circumstances  of 
late  years  led  to  rather  considerable  losses.  Besides, 
although  as  an  overdraft  the  loan  becomes  in  a  man- 
ner permanent,  the  arrangement  creates  no  institution 
of  any  assured  endurance.  While  our  borrower  keeps 
his  credit  employed  —  keeping  money  passing  in  and 
out  the  banker's  till  —  and  otherwise  conducts  himself 
well,  he  is  likely  to  retain  it.  But  he  remains  de- 
pendent upon  an  institution  outside  himself  —  with, 
in  addition,  an  interest  different  from  his  own  —  will- 
ing to  help  him,  but  willing  to  do  so  only  in  its  own 
interest,  for  the  purpose  of  benefiting,  not  him,  but  it- 
self. That  may  go  on  or  it  may  not.  The  arrange- 
ment does  nothing  in  itself  permanently  to  improve  the 
borrower's  position.  And,  of  course,  it  is  not  "  Co- 
operation " — it  is  profitseeking  trading  between  one 
man  and  another. 

Also,  as  I  have  been  assured  by  one  who  at  the  time 
was  probably  the  highest  authority  on  the  point,  there 
is  a  certain  stationariness  about  Scotch  cash  credit. 
It  has  rendered  most  valuable  service.  But  it  does 
not  expand.  Evidently  in  the  more  densely  populated 
world  of  the  present  day,  with  its  infinitely  more  varied, 


40  CO-OPERATIVE  CREDIT 

multiplied  and  democratised  enterprises,  something 
more  is  needed. 

That  "something  more "  Co-operation  supplies.  It 
widens  very  perceptibly  the  area  to  be  ministered  to, 
taking  in  considerably  increased  numbers  of  potential 
beneficiaries,  and  it  gets  rid  of  the  outside  toll-taking 
institution  with  a  distinct  interest,  and  a  will  of  its 
own  (which  may  any  day  dictate  discontinuance  of 
business  relations)  and  a  desire  for  profit  out  of  bor- 
rowers' pockets. 

Under  this  system  the  supremely  important  element 
of  watching  the  borrower,  judging  in  each  case  of  his 
qualifications  and  claims,  and  holding  him  to  account, 
through  neighbours,  under  whose  eyes  he  lives,  is  re- 
tained, and  is,  indeed,  carried  further.  The  number 
of  bondsmen  and  watchers  is  increased  and  the  ring 
formed  by  them  is  doubled.  The  uses  to  which  the 
credit  may  be  put  are  multiplied  and  carried  consider- 
ably lower.  Scotch  cash  credit  was  never  intended  to 
serve  for  single  transactions,  such  as  the  purchase  of 
a  cow,  or  an  implement,  or  manure,  or  else  a  sewing 
machine  for  a  poor  woman,  or  raw  material  or  tools 
for  a  craftsman.  -But  these  objects  want  to  be  pro- 
vided for.  It  is  the  co-operative  bank's  aim  to  dive 
down  low.  Its  object  is,  moreover,  to  become  an 
institution  of  members,  with  only  one,  common,  inter- 
est, a  bank  o\vned  by  tlie  borrowers  themselves,  in 
which  no  profit  will  be  made  out  of  one  man  for  another 
man's  benefit,  but  a  bank  rendering  a  service  at  cost 
price,  and  an  institution  upon  which  members  can  de- 
pend, from  which  they  will  be  entitled  to  claim  a  ser- 


PRINCIPLES  OF  CO-OPERATIVE  CREDIT     41 

vice  in  their  own  right,  so  long  as  their  case  is  good, 
and  which  cannot  capriciously  say  them  nay,  as  a 
banker  or  capitalist  might. 

That  means,  among  other  things  that,  while  using 
the  bank  for  credits,  members  must  also  at  the  same 
time  have  a  steady  eye  to  the  continuous  strengthening 
of  its  financial  position,  which  in  its  turn  means  that 
members  cannot  be  content  with  securing  an  occasional 
convenience  out  of  it,  but  that  in  their  own  interest 
they  must  use  it  as  a  permanent  means  for  their  own 
financial  betterment.  To  this  end  they  must  practise 
thrift  as  well  as  credit.  For  the  bank  is  to  grow  stead- 
ily stronger.  And  so  are  members  as  well.  Coming 
to  it  as  non-capitalists,  they  are  to  make  it  their  en- 
deavour to  emerge  from  it  as  in  some  sense  capital- 
ists. 

A  co-operative  bank  therefore  means  considerably 
more  than  a  mere  borrowing  convenience.  In  return 
it  yields  far  larger  and  more  enduring  benefits.  The 
test  of  its  quality,  however,  will  be  its  capacity  to  make 
lending  safe,  to  ensure  repa;^Tnent  and  businesslike  deal- 
ing with  money.  Once  it  can  do  this,  its  progress  may 
be  taken  as  assured.  The  acquisition  of  the  neces- 
sary funds  can  under  such  circumstances  be  at  worst 
only  a  question  of  time.  For  capital  studiously  seeks 
safe  employment.  And  capital  is  plentiful  in  the 
world. 

The  bank,  though  essentially  "  provident "  in  its 
aims,  differs  in  this  from  friendly  societies  and  also 
from  Building  and  Loan  Associations,  that  it  does  not 
propose  simply  to  collect  members'  own  contributions. 


42  CO-OPERATIVE  CREDIT 

and  deal  them  out  again  to  members,  but  that  it  makes 
it  its  business  to  cater  for  its  members  in  a  much  wider 
sphere,  seeking  to  attract  money  for  members'  use  from 
non-members  as  well  as  from  members.  Once  it  can 
prove  that  it  deals  with  such  money  safely,  there  can 
be  no  question  of  the  required  cash  flowing  into  its 
till,  be  it  in  the  shape  of  specific  loans  or  in  that  of 
deposits.  Deposits,  of  course,  are,  as  we  shall  still 
see,  its  most  desirable  resource,  because  deposits  are 
likely  to  be  cheapest  and  also  steadiest,  and  interfering 
least  with  the  bank's  independence.  They  come  from 
a  good  many  more  different  pockets  than  do  specific 
loans,  and  therefore  are  not  likely  to  be  withdrawn  in 
a  lump.  Generally  speaking,  they  make  "  good,  lying 
money."  Schulze-Delitzsch,  who  first  introduced  this 
kind  of  banking  in  Germany,  would  have  his  banks 
"  sweep  their  several  districts  bare  of  all  spare  cash  " 
—  become  the  recognised  depositing  receptacle  for  their 
local  sphere.  M.  Luzzatti,  in  Italy,  likewise  lavs  great 
stress  upon  the  action  of  his  banks  as  thrift  institutions, 
dubbing  them  "  perfected  savings  banks."  And  in  the 
little  banks  of  the  Eailfeisen  type  systematic  collection 
of  savings  deposits  is  made  a  main  point. 

But  the  success  of  all  this  obviously  must  be  condi- 
tional upon  the  co-operative  bank  first  proving  that  it 
is  a  safe  institution  to  lend  to,  not  so  much  because 
it  has  the  joint  liability  of  a  large  number  of  people 
to  answer  to  creditors  —  that  is  rather  its  collateral 
than  its  effective  security  —  as  because  it  knows  how  in 
its  dealings  with  money  itself  to  avoid  loss. 

Such  object  is  attainable  by  more  methods  than  one, 


PRINCIPLES  OF  CO-OPERATIVE  CREDIT      43 

to  suit  the  several  circumstances;  but  there  are  certain 
features  common  to  all. 

One  such  feature,  of  paramount  importance,  is  this, 
that  under  all  circumstances,  whatever  be  the  consti- 
tution or  the  size  of  the  bank,  its  first  interest  must  be 
to  satisfy,  not  the  borrower,  but  the  lender  of  money. 

It  is  quite  rightly  urged  that,  the  bank  avowedly  be- 
ing "  a  bank  of  borrowers,"  borrowers'  interest  must 
always  stand  first.  So  it  must.  However  the  borrow- 
ers' first  interest  is  that  they  should  obtain  the  money 
which  they  want,  and  obtain  it  honestly,  as  a  matter  of 
business,  not  of  charity.  There  are  not  a  few  people 
who  try  to  wriggle  out  of  this.  They  grudge  the  lia- 
bility ;  they  grudge  the  shares ;  they  grudge  the  trouble ; 
and  they  grudge  the  submission  to  inspection.  The 
ripe  fruit  is  just  to  drop  into  their  lap.  Hence,  in 
addition  to  a  variety  of  fancy  schemes,  which  of  course 
never  work,  we  have  those  quite  un-co-operative  elabora- 
tions which  place  taxpayers'  and  charitable  people's 
money  at  the  service  of  professing  co-operative  banks, 
to  be  distributed  like  heaven-sent  "manna,"  under 
which  permanent  good  can  never  be  achieved.  Credit 
will  do  good  when  it  is  honestly  purchased  and  paid 
for.  And  the  proper  price  for  credit  is  security.  The 
better  the  security,  the  more  certain  and  the  cheaper 
will  be  the  supply  of  money.  Our  object,  as  has  al- 
ready been  explained,  is  to  convert  dormant,  potential 
security  —  such  as  the  money  market  cannot  now  ac- 
cept, but  which  is  all  that  we  have  to  offer  —  into  ef- 
fective security,  which  it  can.  That  is  not  to  be  done 
without  trouble  and  liability.     Such  trouble  and  liabil- 


44  CO-OPERATIVE  CREDIT 

ity  should  not  be  grudged.  We  have  to  pay  the  price, 
and  should  be  wrong  in  making  wry  faces  over  it.  To  a 
co-operator  it  is  pitiful  to  see  how  willing  some  people 
are,  for  the  sake  of  a  little  unpurchased  credit,  which 
may  cease  any  moment,  and  which  produces  no  lasting 
good,  to  sacrifice  all  the  more  valuable  benefits  of  co- 
operation, above  all  things  their  independence  and  the 
permanence  of  a  self-supporting  institution  of  their 
own. 

This  being  premised,  the  common  rules  applying  to 
co-operative  banks  of  all  descriptions  may  be  summed 
up  as  follows.  There  must,  in  the  first  place,  be  a 
collective  liability  of  all  members.  As  against  claim- 
ants these  must  present  a  united  front.  That  does  not 
mean  that  the  liability  must  necessarily  be  unlimited, 
all  for  one  and  one  for  all;  for  it  may  very  well  be 
otherwise ;  but  it  means  that  whatsoever  money  is  raised 
is  raised  and  answered  for  by  the  bank  as  a  whole. 
Distribution  of  liability  must  be  left  to  go  on  inside. 

The  foundation  so  laid  will,  furthermore,  have  to 
be  steadily  and  systematically  strengthened  —  whether 
there  be  shares  or  no  —  by  regular  additions  to  the 
bank's  capital  in  the  shape,  it  may  be,  of  increased 
share  capital  or,  in  any  case,  of  a  growing  reserve  fund. 
Such  additions  should  be  the  first  consideration  in  mak- 
ing up  the  annual  balance  sheet.  Dividend  must  stand 
only  second.  There  are  co-operative  banks  which  have 
rapidly  grown  strong  by  designedly  charging  members, 
with  the  members'  consent,  in  early  years  a  rather 
higher  rate  of  interest  on  loans  than  would  have  been 
strictly  necessary,  for  the  sake  of  creating  a  fairly  sub- 


PRINCIPLES  OF  CO-OPERATIVE  CREDIT      45 

stantial  reserve  fund,  which  places  a  bank  above  dan- 
ger and  greatly  increases  confidence  in  it.  That  tem- 
porary trifling  sacrifice  has  well  repaid  itself.  If  the 
bank  is  at  all  large,  there  will  in  course  of  time  have 
to  be  several  reserve  funds,  to  provide  for  distinct  risks, 
such  as  depreciation.  But  one  main  reserve  fund,  kept 
steadily  growing,  there  will  in  any  case  have  to  be. 

It  may  be  well  at  this  point  to  call  attention  to  the 
fact,  how  much,  apart  from  strengthening  the  bank  by 
an  immediate  capitalist  benefit,  gathering  up  a  sub- 
stantial reserve  fund  will  do  to  ensure  permanence  to 
the  institution,  by  keeping  members  in  it.  The  reserve 
fund  is  the  bank's  collective  property  —  until  dissolu- 
tion. And  a  good  many  co-operative  banks  have 
adopted  the  rule  that  even  in  the  event  of  dissolution 
reserve  shall  not  be  shared  out.  That  does  a  great  deal 
to  keep  members  in  the  bank  —  and  the  more,  the  larger 
the  reserve  fund  is,  from  which  members  in  the  bank 
derive  benefit  which  they  would  forego  by  going  out. 
And  members  staying  in  means  that  the  bank  will  en- 
dure. 

Although  founders  of  a  bank  need  not  be  overtimid 
about  beginning  business  with  only  a  small  number  of 
members,  other  things  being  equal  —  mutual  touch  and 
the  possibility  of  effective  control  being  assured  —  a 
large  number  of  members  is  a  distinct  advantage. 

Another  useful  means  of  attaching  members  to  their 
bank  is,  to  ask  of  them  an  entrance  fee,  which  should 
be  moderate,  and  will  of  course  be  irrecoverable.  Eaif- 
feisen  did  not  want  an  entrance  fee,  because  he  was  op- 
posed to  taxing  incoming  members  —  whom  mere  pov- 


46  CO-OPERATIVE  CREDIT 

ertj  was  not  to  keep  out  —  at  all.  However  entrance 
fees  will  provide  for  minor  wants,  especially  in  a  bank 
newly  formed  and  still  in  a  stage  of  financial  weak- 
ness; and,  being  irrecoverable,  they  will  help  to  keep 
members  in  the  bank. 

In  borrowing  money  the  bank  will  do  well  to  bargain 
in  respect  of  the  funds  borrowed  for  a  lengthened  pe- 
riod, although  of  course  it  must  avoid  burdening  itself 
with  long  term  loans  beyond  what  it  is  likely  to  be  able 
to  employ.  But  it  is  a  great  convenience  to  have  some 
money  that  may  be  depended  upon  for  a  good  long  time. 
In  respect  of  deposits,  however  strong  the  temptation 
may  be  to  do  so,  on  prudential  ground,  it  is  not  good 
policy  to  insist  too  much  upon  long  notice  —  except 
that  be  by  arrangement,  a  triflingly  higher  rate  of  in- 
terest being  allowed  upon  time  deposits.  Whether 
notice  be  stipulated  for  or  not,  it  is  good  policy  to  waive 
that  condition  as  much  as  is  possible  in  practice. 
Nothing  helps  a  savings  bank  so  much  to  collect  de- 
posits as  a  knowledge  among  depositors  that  it  will  be 
prepared  to  repay  them  on  demand. 

In  dealing  with  its  money — borrowed  money  it 
will  be  —  a  co-operative  bank  will  above  all  things  have 
to  study  absolute  safety.  It  cannot  afford  to  run  risks. 
It  is  there  to  eliminate  middleman's  profit  for  the  ben- 
efit of  its  members,  but  not  to  earn  a  profit  either  for 
them  individually  or  for  itself  collectively.  There  is 
great  danger  in  profitseeking  for  profit's  sake,  as  not 
a  few  co-operative  banks  have  been  made  to  discover. 
The  benefit  that  the  bank  is  designed  to  yield  is  that  of 
a  useful,  cheap  and  ever  accessible  service.     Accord- 


PRINCIPLES  OF  CO-OPERATIVE  CREDIT      47 

ingly  it  is  a  common  rule  in  all  co-operative  banks  that 
any  employment  which  involves  risk  must  be  altogether 
avoided,  no  matter  whether  it  be  in  loans  to  members 
or  in  other  investment  of  bank  money. 

Thus,  in  the  first  place,  the  bank  must  make  sure 
that  it  has  prima  facie  trustworthy  customers  to  deal 
with.  As  a  general  rule,  lending  must  be  confined  to 
members.  It  would  not  however  do  to  press  such  lim- 
itation unduly,  in  view  of  this  not  unlikely  occurrence. 
The  bank  may  have  more  mone^'  on  hand  than  it  knows 
how  to  employ  in  loans  to  members.  Such  cases  have 
occurred  and  are  likely  to  occur  again,  however  care- 
fully they  be  guarded  against.  In  Germany,  about 
1895,  there  was  a  glut  of  money  unasked  for.  Such 
money  cannot  be  kept  idle  without  loss  of  interest, 
such  as  the  bank  ought  to  desire  to  avoid.  Under  such 
circumstances  a  bank  might  refuse  to  take  further  de- 
posits or  might  even  pay  off  some  of  those  that  it  holds, 
in  order  to  ease  itself.  However  that  is  apt  to  unsettle 
business  and  is  not  invariably  acceptable  to  members. 
Under  such  circumstances  it  ought  to  be  permissible 
to  place  some  of  the  surplus  money,  should  the  oppor- 
tunity offer,  in  an  exceptional  way,  in  the  shape  of 
loans  even  to  non-member  institutions  or  capitalists  of 
undoubted  solvency.  The  ordinary  current  loan  bus- 
iness, which  is  what  the  bank  was  formed  for,  how- 
ever, should  be  confined  to  members  only.  Those  mem- 
bers must  be,  not  admitted  indiscriminately,  upon  the 
principle  "  the  more  the  merrier."  The  more  there 
are,  no  doubt,  the  more  business  there  is  likely  to  be, 
and  the  better,  accordingly,  may  the  bank  fare  finan- 


48  CO-OPERATIVE  CREDIT 

cially.  However  business  for  business'  sake  is  not 
what  the  bank  was  formed  for.  It  is  to  serve  mem- 
bers, and  to  do  so  by  studying  security.  And,  in  the 
words  of  M.  Luzzatti,  the  "•  father  "  of  the  successful 
co-operative  credit  movement  in  Italy,  "  the  best  se- 
curity of  a  co-operative  bank  is  the  moral  worth  of  its 
members."  It  is  better  to  have  a  smaller  number  of 
trustworthy  members  than  a  large  one  of  men  who  are 
not  trustworthy.  The  bank  should  therefore  exercise 
a  reasonable  amount  of  care  in  the  admission  of  mem- 
bers. 

The  members  being  selected,  it  goes  without  saying 
that  the  government  of  the  bank  must  be  thoroughly 
democratic,  "  of  the  members,  hy  the  members,  jor  the 
members."  The  supreme  authority  must  in  any  case 
be  vested  in  the  general  meeting.  The  governing  bod- 
ies should  be  freely  elected,  without  respect  of  person 
and  capital  should  have  no  say  in  the  determination  of 
matters.  There  must  be  "  one  man  one  vote."  The  so- 
ciety is  a  union,  not  of  capitals,  but  of  members,  whose 
capital  pa^Tnent  is  not  an  investment  in  the  ordinary 
sense  —  it  cannot  be  sold  —  but  a  stake.  The  dividend 
on  capital  must  be  limited  to  a  moderate  rate.  If  more 
were  to  be  earned  than  will  pay  the  interest  fixed  for 
share  capital,  it  ought  —  as  in  the  co-operative  store  — 
to  go  to  "  business,"  in  proportion  to  business  done. 
That  will  mean,  not  a  gain  to  the  receiver,  but  a  restitu- 
tion of  what  was  (for  safety's  sake)  first  taken  in  excess 
of  actual  cost.  The  bank  is  there  to  study  cheapness  in 
loaning  for  its  members  and  if  at  the  end  of  the  year 
there  should  be  more  over  than  is  necessary  for  main- 


PRINCIPLES  OF  CO-OPERATIVE  CREDIT      49 

taming  a  good  balance,  with  an  allowance  for  reserve, 
that  is  a  proof  that  too  high  interest  has  been  charged ; 
and,  if  there  is  a  prospect  of  the  same  state  of  things 
continuing,  rather  should  interest  be  lowered  than 
dividend  paid. 

In  its  fixing  of  rates  of  interest  the  bank  can  of 
course  not  commit  itself  to  a  hard  and  fast  rule,  as  is 
sometimes  demanded.  It  is  there  to  provide  cheap 
money  —  if  it  can.  But  its  first  duty  is  to  make  ends 
meet.  If  it  have  active  business,  it  will  be  able  to  fix 
its  rate  low  and  work  with  a  narrow  margin.  Should 
its  business  be  slack,  the  margin  between  interest 
charged  and  interest  allowed  may  have  to  be  consider- 
able. In  a  bank  peculiarly  situated  in  Italy  I  have 
found  as  much  as  2  per  cent,  margin.  The  bank  will 
in  every  case  have  to  cut  its  coat  according  to  its  cloth. 

The  bank  being  formed  to  render  a  service,  it  is  its 
business  to  inquire  beforehand  if,  in  the  case  of  a  loan 
applied  for,  a  service  will  really  be  rendered.  That 
means  that  it  must  know  something  about  the  employ- 
ment of  the  loan.  For  it  is  not  there  to  encourage  in- 
discriminate running  into  debt,  but  distinctly  only  to 
favour  such  going  into  debt  as  is  justifiable  as  promis- 
ing a  remunerative  return.  In  some  banks,  as  will  be 
shown,  the  scrutiny  of  the  object  of  a  loan  will  have 
to  be  carried  to  an  extreme  point  and  the  borrower  will 
have  to  be  rigorously  tied  down  to  that  employment. 
In  such  cases  the  employment  of  the  loan  itself  be- 
comes a  security  for  the  loan.  In  any  case  sufiicient 
should  be  known  to  satisfy  the  bank  that  the  em- 
ployment will  be  a  good  one,  ensuring  either  profit- 


50  CO-OPERATIVE  CREDIT 

able  production  or  else  economy,  and  that  it  is  appro- 
priate to  the  particular  borrower.  In  the  event  of  any 
loan  being  wrongly  employed,  whatever  punitive  re- 
sources the  bank  retain  in  its  hand,  it  will  in  any  case 
be  able  to  safeguard  itself  for  the  future  by  refusing 
the  peccant  borrower  any  further  credit.  But  it  is  as 
well  to  make  sure  of  being  on  the  right  side  from  the 
outset. 

That  is,  however,  not  enough.  As  the  bank  pledges 
itself  specifically  to  the  original  provider  of  the  money, 
so  it  will  have  to  take  specific  security  from  its  borrow- 
ing member  beyond  what  is  provided  for  by  the  general 
precautions  already  mentioned. 

Now  the  point  of  security  raises  rather  a  wide  ques- 
tion. What  is  the  best  form  of  security  to  take  ?  We 
are  so  used  to  pledge  credit  that  we  almost  instinctively 
turn  first  to  such  securities  as  mortgages,  chattel  mort- 
gages or  crop  liens,  which  provide  a  visible  object  such 
as  in  case  of  default  may  be  seized  in  satisfaction. 
However  by  common  consent  these  would  be  most  in- 
convenient securities  for  a  hanh  to  hold,  more  particu- 
larly a  co-operative  bank,  which  is  differentiated  from 
other  banks  by  dealing  as  a  rule  with  a  much  smaller 
capital.  Borrowers  may  after  all  default;  and  then 
what  is  the  bank  to  do  with  its  white  elephant  of  a 
pledge?  A  co-operative  bank  in  Cannstadt  in  Ger- 
many lent  money  on  a  theatre.  It  had  to  foreclose,  and 
the  theatre  was  a  burden  on  its  hands.  Another  co- 
operative bank  in  the  South  of  Germany  lent  money 
on  a  watermill.  The  mill  was  carried  away  by  a  flood 
■ —  and  where  was  its  security  ?     There  are  cases  in 


PRINCIPLES  OF  CO-OPERATIVE  CREDIT      51 

which  the  matter  practicallj-  reduces  itself  to  Hobson's 
choice.  There  must  be  adequate  security  of  some  sort ; 
and  the  bauk  will  have  to  accept  from  the  borrower 
whatever  he  may  have  to  offer.  However  it  has  long 
since  become  the  common  rule  to  avoid  pledges  of  all 
sorts —  more  particularly  mortgages,  as  locking  up  cap- 
ital —  and  if  they  must  be  taken,  to  take  them  only 
as  collateral  security.  The  regulation  form  of  secur- 
ity should  be  personal. 

This  is  more  than  a  question  merely  of  convenience. 
Pledge  credit,  in  the  late  Leon  Say's  words,  denotes 
"  the  infancy  of  credit."  It  represents  a  quite  elemen- 
tary form  of  credit,  in  a  stage  of  undeveloped  resources. 
We  ought  to  have  grown  sufficiently  beyond  that  stage 
to  want  to  "  cast  away  childish  things."  Pledge  credit 
necessarily  tends  to  weaken  the  sense  of  responsibility. 
The  borrower  is  tempted  to  comfort  himself  with  the 
reflection  that,  whther  he  repay  at  the  promised  time 
or  not,  there  is  the  pledge !  The  lender  accordingly  is 
secured.  Therefore  it  enfeebles  the  sense  of  obliga- 
tion and  trains  away  from  businesslike  dealing,  which 
it  is  essential  should  be  as  much  as  possible  pressed 
home,  more  particularly  upon  such  clientele  as  the  co- 
operative bank  is  likely  to  possess,  coming  newly  to  the 
practice  of  credit  and  wanting  to  be  taught.  Certainly 
the  pledge  weakens  the  sense  of  being  bound  to  a  par- 
ticular date,  which  is  one  of  the  most  important  lessons 
of  credit  to  inculcate.  Por  a  bank  whose  borrowers  do 
not  repay  promptly,  which  is  therefore  left  in  doubt  as 
to  when  its  money  will  come  in,  is  on  the  high  road  to 
insolvency.     Purthermore  the  pledge  potentially  places 


52  CO-OPERATIVE  CREDIT 

a  useful  object  out  of  use.  That  constitutes  a  tax  upon 
the  borrower.  Personal  credit  is  free  from  all  these 
defects.  It  takes  nothing  away  from  any  one;  it  does 
not  inconvenience  the  lender  in  any  way;  it  decidedly 
quickens  the  sense  of  responsibility,  with  respect  to  time 
as  otherwise;  and  it  automatically  educates  the  bor- 
rower to  businesslike  practices.  It  sharpens  his  wits, 
it  teaches  hira  to  calculate  before  he  stakes,  it  forces 
him  to  reckon  up  gain  and  loss  and,  in  the  place  of 
saddling  the  lender  with  an  inconvenient  encumbrance, 
it  may  provide  him  with  a  security  which  may  in  case 
of  need  be  employed  to  provide  fresh  money.  That  is, 
if  the  record  of  the  loan  take  the  shape  of  a  promissory 
note,  a  bill  of  exchange  or  an  acceptance,  which  three 
forms,  being  alike  discountable,  are  the  most  conven- 
ient from  the  point  of  view  of  the  bank.  Discounting, 
to  raise  fresh  money,  may  indeed  become  a  source  of 
gain  to  the  bank,  whose  endorsement  is  likely  to  com- 
mand a  lower  rate  of  discount  than  itself  charged  to  its 
member.     In  any  case  personal  credit  is  desirable. 

The  acceptance  of  personal  security  does  not  of 
course  necessarily  mean  that  the  borrower  is  to  be 
trusted  on  his  own  undertaking  only  to  repay.  Cases 
in  which  this  is  admissible  will  occur.  But  they  are 
likely  —  and  ought  —  to  be  few.  As  a  rule  some  other 
security  will  have  to  be  asked  for  —  were  it  only  to 
train  members  to  a  practice  which  for  many  of  them  is 
likely  to  be  novel.  And  that  security  had  much  the 
best  take  the  shape  of  suretyship  —  suretyship  propor- 
tioned to  the  loan  and  to  the  borrower's  supposed  trust- 
worthiness.    On  this  point  it  is  impossible  to  lay  down 


PRINCIPLES  OF  CO-OPERATIVE  CREDIT     53 

any  hard  and  fast  rule,  say  so  many  sureties.  One  man 
may  want  more  backing  than  another,  and  one  surety 
may  be  worth  half  a  dozen  others.  Credit  is  a  delicate 
commodity,  which  wants  to  be  delicately  handled. 
Every  case  will  require  to  be  judged  by  itself.  You 
cannot  lay  it  down  that  there  shall  be  one,  or  two,  or 
three  signatures.  Under  Scotch  cash  credit  there  have 
been  as  many  as  ten.  That  is  an  extreme  case.  But 
in  any  case  the  security  will  have  to  be  fixed  according 
to  the  amount  of  risk  incurred. 

It  is  a  mistake  to  suppose  that  the  sureties  must 
needs  be  members  of  the  bank.  The  bank  should  give 
only  to  members ;  it  may  take  from  any  one.  In  truth, 
a  surety — being  first  approved,  of  course — not  being  a 
member  of  the  bank,  rather  tends  to  strengthen  the 
bank,  as  buttressing  it  with  outside  support.  The  one 
thing  needful  is  that  the  surety  be  sufficient  for  its  pur- 
pose, and  that  its  willingness  to  serve  should  be  ascer- 
tained beyond  doubt. 

There  is  a  practice  in  use  in  some  parts  of  privately 
appraising  members  —  borrowers  or  sureties  —  accord- 
ing to  what  is  in  America  known  as  "  financial  rating." 
In  some  cases  such  appraisement  is  not  private,  but 
"  Smith  "  knows  that  he  is  set  down  as  good  for  $1,000, 
"Jones"  for  $5,000,  and  "Brown"  for  $20,000  — 
which  means  that,  as  a  matter  of  convenience,  the  man- 
ager of  the  bank  is  authorised  to  lend  to  each,  without 
asking  for  further  security,  up  to  the  sum  named.  The 
three  may  combine  for  one  or  other  of  them  to  raise 
$26,000  on  the  three  signatures.  This  is  not  a  prin- 
ciple which  it  is  advisable  to  rely  upon  exclusively.     In 


54>  CO-OPERATIVE  CREDIT 

large  banks  a  financial  rating  is  a  help  for  tke  manager. 
But  it  represents  a  departure  from  the  co-operative 
rule  of  watching  over  the  employment  of  the  money 
borrowed.  Its  use,  as  above  instanced,  weakens  con- 
trol, such  as  in  a  co-operative  bank  —  which  is  bound 
to  supply  in  "elbow  grease"  what  it  cannot,  on  the 
gTOund  of  the  comparative  exiguity  of  its  means,  supply 
in  money  —  it  is  of  the  utmost  importance  should  be 
kept  active;  and  it  is  apt  to  weaken  that  peculiar  per- 
sonal interest  and  identification  of  every  member  with 
Ihe  bank  as  a  whole,  on  which  the  success  of  a  co-oper- 
ative bank  greatly  depends.  Indeed,  in  such  a  society 
everything  which  tends  to  mechanical  routine  is  to  be 
deprecated. 

Provided  that  all  ordinary  business  precautions  have 
been  observed,  the  sureties  referred  to  act  in  the  case 
of  a  co-operative  bank  precisely  in  the  same  way  that 
they  would  do  under  Scotch  cash  credit,  that  is  to  say, 
they  keep  the  borrower  under  control  and  see,  in  their 
own  interest,  that  he  fulfils  his  duty;  and  their  action 
has  the  same  beneficent  educating  and  restraining 
effect. 

But  to  make  sure  of  the  observance  of  the  prescribed 
precautions  it  is  necessary  —  and  the  common  prac- 
tice—  to  maintain  a  system  of  control  which  is  as 
searching  as  it  is  self-regulating.  In  the  first  place 
there  is  what  the  late  Sir  Eobert  Morier  with  good 
reason  laid  particular  stress  upon,  namely,  a  "maxi- 
mum of  publicity."  There  is  nothing  in  these  banks 
which  wants  to  be  kept  secret  —  except  the  deposit 
account  of  each  member,  about  which  not  a  hint  nor 


PRINCIPLES  OF  CO-OPERATIVE  CREDIT      55 

a  whisper  must  get  abroad.  Tliat  may  very  well  be 
done.  There  are  very  humble  people  in  some  of  these 
banks,  who  would  not  wish  the  amount  of  their  deposits 
to  be  disclosed.  In  English  trustee  savings  banks  we 
have  had  workingmen  depositors  shrinking  back  and 
leaving  the  bank  when  they  discovered  that  their  em- 
ployers were  among  the  trustees  or  managers.  Apart 
from  the  deposit  accounts,  however,  the  more  public 
everything  is,  the  better  will  the  bank  fare.  Publicity 
acts  like  oxygen  in  the  atmosphere,  to  keep  things  sweet 
and  clean.  Mutual  watching  and  knowledge  of  one 
another  and  of  all  goings  on  are  necessary  as  one  of 
the  substitutes  resorted  to  for  the  cash  which  is  more 
plentiful  in  capitalist  institutions  and  there  plays  the 
chief  role.  The  security  which  the  bank  offers  to  its 
lenders  is  the  certainty  that  money  loaned  will  be  re- 
paid. That  is  the  meaning  of  "security  "  in  any  case. 
The  capitalist  gives  it  by  pledging  something  salable 
of  higher  value  than  his  own  debt.  The  non-capitalist 
cannot  provide  such  article.  But  he  can  provide  some- 
thing which  in  his  own  case  is  equally  effective  —  the 
pressure  which  his  classmates  and  comrades,  who  make 
themselves  liable  for  his  debt,  who  have  him  under 
their  eye,  and  whose  good  opinion  he  is  bound  to  de- 
sire to  retain,  exercise  upon  the  borrower.  Such  se- 
curity has  been  found  effective  in  all  grades  of  the 
social  scale.  It  is  dependent  for  its  effectiveness  upon 
control.  And  control  begins  with  the  knowledge  of 
what  the  man  is  committed  to  with  his  bank,  and,  more 
generally,  in  what  way  the  bank's  money  is  employed. 
However,  to  have  its  full  effect,  the  cult  of  publicity 


56  CO-OPERATIVE  CREDIT 

should,  in  its  bolder  features,  be  carried  beyond  the 
limits  of  the  society  itself.  The  bank  lives  upon  the 
confidence  that  it  can  inspire  in  others.  It  wants 
money  from  outside.  Hence  the  outside  public  should 
be  made  aware  how  its  affairs  stand  at  any  time.  It 
does  not  follow  that  every  detail  should  be  made  public, 
that  the  public  should  be  made  to  know  who  has  bor- 
rowed and  who  has  not.  But  the  balance  sheet  ought 
to  be  allowed  to  become  public  property.  There  is 
nothing  to  secure  confidence  like  continuous  good  man- 
agement, which  can  be  proclaimed  only  by  the  balance 
sheet  made  public.  The  great  Co-operative  People's 
Bank  of  Milan,  which  now  has  a  share  capital  of  hun- 
dreds of  thousands,  began  with  only  $140.  It  secured 
the  confidence  of  the  public  by  posting  its  daily  balance 
sheet  outside  its  humble  office  every  night,  for  the  pub- 
lic to  see.  And  those  who  came  to  scoff  remained  to 
applaud,  when  they  had  satisfied  themselves  how  well 
the  bank  was  doing  and  to  advertise  it.  The  successful 
co-operative  bank  of  Mentone,  which  likewise  began 
in  a  humble  way,  at  a  time  of  local  panic,  after  the 
breakdown  of  other  local  banks,  at  once  gained  public 
confidence  in  the  same  way. 

That  bank,  by  the  way,  teaches  another  useful  lesson, 
which,  after  the  bank  crashes  in  Australia,  it  was 
thought  might  have  to  be  taken  advantage  of  in  that 
country.  After  the  smashes  that  had  occurred  in 
Mentone  at  the  time  all  confidence  in  banks  as  an  in- 
stitution seemed  gone.  It  is  doubtful  if  a  new  capita- 
list bank  opening  its  doors  at  that  time  would  have 
found  custom.     ]3ut  here  was  a  bank  of  the  customers 


PRINCIPLES  OF  CO-OPERATIVE  CREDIT     57 

themselves,  owned  by  them,  managed  by  them,  answer- 
able to  them,  dealing  with  their  own  money !  Under 
such  circumstances  comparative  poverty  achieved  read- 
ily what  wealth  might  have  failed  to  accomplish.  The 
competence  of  the  officers  chosen  had  not  a  little  to 
answer  for  in  the  success.  But  the  main  reason  was 
the  bank's  co-operative  character,  with  everything  open 
and  ascertainable  by  those  who  used  it  and  whose 
money  was  at  stake. 

The  entire  structure  of  a  co-operative  bank  rests  upon 
the  foundation  of  effective  control,  which  is  not  possible 
without  all  facts  being  placed  within  reach  of  inquirers. 
The  affairs  of  the  bank  are  administered  by  an  elected 
Committee.  But  that  committee  is  effectively  con- 
trolled by  a  Council  of  Inspection  or  Supervision  — 
which  under  the  German  law,  now  accepted  as  the  best 
for  the  purpose,  really  represents,  so  to  put  it,  the 
"  Board "  of  a  Company,  the  Managing  Committee 
standing,  as  the  executive  organ,  for  the  administering 
'^  Manager."  We  have  here  not  a  question  of  presum- 
able dishonesty  to  deal  with  —  although  dishonesty 
naturally  has  to  be  guarded  against.  However  the 
Committee  is  human;  it  acts  among  neighbours;  its 
members  are  likely  to  have  sympathetic  chords  in  their 
hearts.  Should  they  not  stretch  a  point  to  oblige  their 
neighbour?  They  might  be  tempted  to  do  so.  But 
there  is  the  Council  to  check  their  doings  —  the  Coun- 
cil, which  in  course  of  time,  will  report  to  the  General 
Meeting  and  may  haul  the  Committee  over  the  coals 
at  any  time.  The  Committee's  answer  to  its  ap- 
plicant will  accordingly  be :  — "  My  dear  fellow,   we 


58  CO-OPERATIVE  CREDIT 

cannot  stretch  the  point;  the  Council  will  not  let  us." 
Or  it  may  be  that  a  salaried  member  of  the  Committee, 
to  whom  his  small  honorarium  is  of  consequence,  is 
threatened  by  an  importunate  but  questionable  ap- 
plicant: •'  I  shall  not  vote  for  your  re-election."  Once 
more,  his  answer  will  be  that  he  cannot  give  way. 
Above  the  Council  of  course  there  is  the  General  Meet- 
ing, which  is  lord  supreme  in  its  own  domain,  and 
which  can,  obviously,  adjudicate  upon  cases  specially 
referred  to  it.  And  it  is  rightly  usual  now  —  indeed 
some  Governments  have  very  properly  made  it  obliga- 
tory —  to  supplement  the  checking  of  the  Council  of 
Inspection  —  which  brings  local  knowledge,  knowledge 
of  the  members,  to  its  task,  by  a  further  checking  by  a 
shilled  accountant,  trained  to  this  particular  work,  who 
knows  more  about  general  banking  and  whose  assistance 
in  the  matter  has  been  found  highly  useful.  Special 
consideration  will  still  be  given  to  this  point. 

The  points  here  enumerated  practically  sum  up  the 
structure  of  a  co-operative  bank  or  credit  society  in  its 
general  features.  There  will  have  to  be  selection  of 
members,  to  ensure  prima  facie  trustworthiness ;  dis- 
crimination in  respect  of  loans;  adequate  security  for 
such;  strictness  in  exacting  observance  of  rules; 
responsibility  divided  down  so  as  to  leave  no  act  un- 
answered for;  and  such  responsibility  brought  home  to 
every  one  by  searching  control.  All  risk  must  be 
avoided  on  principle.  Wherever  long  term  credit  is 
required,  as  in  agriculture  —  supposing  that  the  bank 
is  based  upon  shares,  that  is,  upon  a  rapid  circulation 
of  money  in  general  —  there  ought  certainly  to  be  a 


PRINCIPLES  OF  CO-OPERATIVE  CREDIT      59 

mingling  of  callings,  so  as  to  produce  a  balance  of  de- 
mand and  supply,  which  is  an  advantage  in  any  case. 
Some  continental  Governments  in  Europe,  thinking 
more  of  politics  than  of  co-operative  economics,  have 
made  it  a  practice  to  favour  the  formation  of  particular 
banks  for  particular  callings  —  agriculture,  and  also 
distinctive  industrial  trades.  However  the  result  has 
not  been  universally  successful.  And  it  stands  to  rea- 
son, on  economic  grounds.  Men  of  one  calling  are 
likely  to  require  their  money  all  at  the  same  time  and 
to  want  to  pay  it  back  also  all  at  the  same  time  —  which 
means  that  at  one  season  the  bank  will  be  overburdened 
with  cash,  at  another  at  its  wit's  end  to  provide  for 
demands  coming  crowding  in.  Under  such  conditions 
good  business  is  impossible.  The  more  differing  ele- 
ments are  brought  in,  to  dovetail  into  one  another,  not 
only  the  more  will  business  tend  to  balance  itself,  the 
wants  of  one  calling  coinciding  with  the  superfluity  of 
the  other,  but  the  broader  also  will  be  the  foundation, 
the  more  assured  accordingly  the  stability  of  the  bank. 
Of  course  the  little  bank,  with  its  more  or  less 
amateur  managers,  will  have  to  make  it  a  rule  to  con- 
fine itself  strictly  to  its  own  proper  business,  for  which 
it  is  organised.  The  temptation  may  be  great  some- 
times to  step  outside,  .in  order  to  engage  in  more  re- 
munerative business.  But  there  is  danger  in  this.  A 
spade  will  not  carve  a  joint,  nor  will  a  carving  knife 
dig  a  trench.  It  may  be  well  that  attention  should  be 
called  to  this,  as  likely  to  reassure  joint  stock  and  pri- 
vate banks  on  the  score  of  possible  rivalry.  Co-opera- 
tive banks  will   have  their   own   sphere   to   work   in. 


60  CO-OPERATIVE  CREDIT 

beyond  which  they  should  not  go  —  and  would  go  only 
at  their  own  peril.  The  late  Leon  d'Andrimont,  the 
"  father  "  of  the  Belgian  co-operative  banking  move- 
ment, wanted  to  tie  his  co-operative  bank  down  even  to 
a  limit  in  amount  of  money  loaned. 

If  all  the  rules  here  laid  down  are  properly  observed, 
in  the  words  of  the  Hon.  Maggiorino  Ferraris,  late 
Italian  Minister  of  Posts  and  Telegraphs,  who  has 
long  been  one  of  the  recognised  leaders  of  the  co-opera- 
tive credit  movement  in  Italy,  "  it  is  inconceivable  how 
a  People's  Bank  could  go  wrong." 

The  several  models  upon  which  such  a  bank  may 
be  moulded  will  be  discussed  in  the  succeeding  chapters. 


CHAPTER  III 

CO-OPEKATIVE    BANKS    BASED    UPON    SHARE    CAPIT'AI* 

The  type  of  organisation  suited  for  a  co-operative 
bank  likely  at  first  blush  to  commend  itself  most  to 
American  and  English  pioneers  is  that  which  makes 
such  institution  most  nearly  resemble  a  joint  stock  com- 
pany. We  can  all  understand  shares.  There  must  be 
working  capital.  And  we  can  understand  share  capital 
being  remunerated  by  dividend.  A  co-operative  society 
will  of  course  have  to  be  careful  to  eliminate  from  its 
constitution  those  particular  features  of  joint  stock  prac- 
tice which  distinctly  militate  against  co-operative  prin- 
ciple. Thus  there  will  have  to  be  a  limitation  of 
interest  payable  on  capital.  Eor  a  co-operative  society, 
being  a  union  of  members,  not  of  capitals,  employs  capi- 
tal only  as  a  hired  instrument  of  business.  Voting  in  it 
will  have  to  be,  not  by  shares,  but  by  members,  whatever 
their  holdings  may  be.  There  may  furthermore  be 
dividend  on  business,  corresponding  to  that  which  is 
allowed  on  purchase  in  a  co-operative  store.  Apart 
from  this,  transactions  are  naturally  likely  to  be  gen- 
erally smaller  —  and  it  may  be  less  varied  —  than  in 
a  joint  stock  company,  which  of  course  —  being  in 
quest  of  profit  —  lays  itself  out  for  a  maximum  of  bus- 
iness, whereas  the  co-operative  bank  studies  merely  to 

61 


62  CO-OPERATIVE  CREDIT 

accommodate  its  members  with  such  services  as  they 
may  require  and  should  restrict  itself  to  such.  And, 
above  all  things,  all  operations  involving  any  risk  vi'hat- 
ever  will  have  to  be  rigorously  excluded  from  the  busi- 
ness programme.  For  the  governing  body  are  not 
private  venturers,  like  ordinary  bankers,  but  purely 
trustees.  However  the  general  character  of  the  work 
done  will  be  very  similar,  as  the  American  Commission 
has  discerned  —  it  wall  be  business  —  pure  business, 
business  in  money,  reliance  for  the  supply  of  such  ma- 
terial being  based  upon  deposits  and  for  liquidity  upon 
quick  returns. 

Wherever  there  is  a  tolerable  quantity  of  money 
passing  through  the  hands  of  members,  and  where  bus- 
iness principles  are  fairly  well  understood,  there  could 
be  no  more  appropriate  organisation  than  that  sug- 
gested. And  such  organisation  possesses  some  distinct 
advantages,  which  must  be  apparent  to  every  one.  A 
bank  so  constituted  will  be  able  to  extend  its  district 
at  pleasure,  as  circumstances  may  dictate;  smallness 
is  by  no  means  essential  to  its  success.  It  will  further- 
more be  at  liberty  to  impose  upon  its  members  at  will 
either  unlimited  or  else  limited  liability,  just  as  they 
may  prefer  —  liability,  if  limited,  limited  dowTi  to  the 
very  face  value  of  the  share  taken  up,  if  that  be  desired. 
There  will  be  no  occasion  to  forbid  membership  in 
other  similar  organisations.  There  will  have  to  be 
general  control,  of  course;  but  the  bank  will  be  less 
tied  down  to  minutely  meticulous  investigations  and 
precautions  in  its  dealings  with  members  —  as  to  the 
disclosing  of  the  object  of  each  loan,  as  to  having  such 


A  SHARE  BASIS  63 

object  approved,  and  having  the  employment  closely 
watched,  with  penalties  prescribed  for  non-observance 
—  than  a  bank  based  purely  upon  unlimited  liability. 
For  it  is  already  in  possession  of  all  that  constitutes  the 
member's  money  liability.  There  will  have  to  be  strict- 
ness with  regard  to  time  limits.  Obviously  that  is  quite 
essential.  But  otherwise  the  bank  will  be  little 
hampered  by  superprecautionary  considerations.  It  is 
there  to  do  business,  and  the  best  business  that  it  can, 
for  its  members.  Even  so  its  program  need  not  ex- 
clude aims  of  what  by  co-operators  is  considered  a 
higher  order.  The  collaboration  of  so  many  people 
with  more  or  less  identical  interests,  linked  together 
by  the  most  potent  of  bonds,  the  common  interest  of  the 
pocket,  discussing  business  matters  in  common,  where 
mind  may  be  expected  to  sharpen  mind,  will  be  sure 
to  act  as  a  stimulus  to  intelligence  and  character. 
Such  collective  labour  may  also  be  counted  upon  to 
open  new  avenues  for  common  action,  likely  to  be  for 
the  common  benefit.  Italian  banks  of  this  type  have 
made  a  great  point  of  studying  public  interests  by  sup- 
port given,  with  the  help  of  their  small  surpluses,  to 
enterprises  of  common  utility  —  such  as  education,  co- 
operation on  other  ground  and  the  like.  And  the 
impetus  which  German  banks  of  this  order  have  im- 
parted to  the  use  of  cheques,  clearing,  information 
among  themselves  respecting  doubtful  borrowers  and 
widely  distributed  cashing  of  bills  and  cheques  —  let 
alone  common  inspection,  all  being  methods  of  educa- 
tion —  must  count  for  not  a  little  in  their  catalogue 
of  merits  as  public  institutions.     But  in  substance  the 


64  CO-OPERATIVE  CREDIT 

aim  of  these  banks  will  be  economic  — to  produce  bet- 
ter business  conditions  for  their  adherents,  bv  keeping 
a  money  counter  perpetually  open  to  them,  at  which 
they  have  a  right,  on  certain  conditions,  to  demand 
credit ;  by  diverting  the  middleman  banker's  profit  into 
borrowers'  own  pockets;  and  by  putting  all  banking 
business  into  a  more  popular  shape,  intelligible  to  the 
untrained. 

Xow  the  first  point  in  connection  with  the  organisa- 
tion of  such  a  society  to  claim  consideration  is  its  pro- 
posed means  of  obtaining  money.  The  society  is  to 
issue  shares,  which  of  course  will  produce  something. 
But  they  will  not  produce  nearly  enough  for  the  pur- 
poses of  the  intended  establishment  which,  moreover  — 
so  it  will  be  well  to  remember  —  is  not  to  be  a  Friendly 
Society  or  Building  and  Loan  Association,  dealing  out 
to  borrowers  only  its  members'  own  money,  but  a 
"  bank,"  operating  as  much  as  can  be  with  capital  bor- 
rowed from  the  outside.  Its  own  small  share  capital 
is  from  the  outset,  in  Leon  Say's  words,  designed  only 
as  a  "  capital  of  guarantee,"  to  stand  the  racket  of  loss, 
— an  instrument  of  guarantee  to  be  offered  to  lenders  as 
a  security  in  case  of  any  deficiency,  which  deficiency 
in  this  way  will  fall,  not  upon  the  lender,  but  upon  the 
borrower.  The  main  object  of  such  capital  is  to  at- 
tract other  money.  If  that  is  so  in  capitalist  banks, 
as  has  been  already  explained,  how  much  gi'eater  need 
is  there  of  such  magnetic  action  in  a  bank  formed  with 
only  little  money,  because  its  members  are  not  capital- 
ists, to  enable  them  to  become  so.  There  is  no  need  to 
apprehend  that  under  such  conditions  borrowed  capi- 


A  SHARE  BASIS  65 

tal  will  not  be  forthcoming  —  supposing  the  bank  to 
be  well  managed.  The  allurements  which,  on  ground 
then  still  new  and  wholly  unexplored,  the  earliest  pio- 
neers of  the  movement  held  out  to  money,  have  proved 
not  merely  sufficient  but  excessive.  They  have  led  to 
capitalist  abuses  —  such  as  exorbitant  dividends,  deal- 
ing in  shares,  excessive  credits,  improper  business. 
"  We  have  succeeded  too  well,"  so  exclaimed  M.  Luz- 
zatti  at  a  Paris  congress,  only  twenty-five  years  after 
he  had  started  his  first  bank  in  Italy.  And  he  has 
confessed  to  me  that  at  the  outset  he  did  not  limit  in- 
terest on  share  capital,  because  it  appeared  to  him  very 
problematical  whether  there  would  be  any  surplus  to 
divide  at  all.  It  was  the  excess  command  of  money 
brought  in,  owing  to  such  overliberal  treatment,  which 
nearly  wrecked  the  Milan  People's  Bank  in  1873, 
tempting  it  upon  the  path  of  speculation,  and  which 
has  quite  wrecked  some  other  banks  less  well  nerved 
to  resist  the  temptation.  Some  of  Schulze's  banks  have 
in  past  years  actually  run  rank  riot  in  the  matter  of 
dividend.  Money  is  not  so  churlishly  diffident  as  had 
been  supposed.  It  is  apt  indeed  to  hold  back  distrust- 
fully at  first.  Co-operative  credit  is  to  it  what  the 
newly  painted  gate  is  to  the  cow.  But  show  it  that  its 
money  will  be  safe,  and  it  will  come  in  readily  enough 
to  the  tune  of  an  only  moderate  dividend.  It  is  impor- 
tant that  money  should  not  be  over-remunerated,  in 
order  that  there  should  not  be  two  interests  in  the  bank 
—  the  lender's  and  the  borrower's,  with  a  temptation 
for  the  former  to  exploit  the  latter.  The  banks  are 
intended  to  be  borrowers'  banks. 


66  CO-OPERATIVE  CREDIT 

But,  though  money  should  not  be  overpetted  — 
neither  loan  money  nor  share  money  —  it  is  very  im- 
portant that  there  should  be  some  belonging  to  the 
bank  and  that  that  "'  some  "  should  go  on  steadily  in- 
creasing. The  accumulation  of  share  capital  beyond 
the  first  stake  cannot  be  enforced.  But  it  should  be 
systematically  encouraged.  Once  members  are  brought 
to  take  an  interest  in  the  bank,  regarding  it,  not  as  a 
mere  casual  convenience,  but  as  their  own  useful  estab- 
lishment, they  will  also  be  brought  to  see  th.at  their 
share  capital,  which  will  attract  at  least  five  dollars  of 
loan  money  to  every  one  dollar  of  their  own,  represents 
a  very  valuable  and  fructifying  stake.  A  bank  strong 
in  share  capital  will  be  able  to  command  all  the  more 
loan  capital  in  proportion.  On  the  other  hand  a  re- 
serve fund  may  be  forced  upward  by  systematic  nurs- 
ing. And  a  dollar  in  the  reserve  will  be  as  valuable 
as  a  money  getting  asset  as  a  dollar  in  shares.  Twenty 
or  twenty-five  per  cent,  of  every  annual  surplus  should 
accordingly  be  appropriated  to  reserve  under  a  stand- 
ing rule,  and  no  maximum  should  be  fixed  at  any  rate 
proportioned  to  the  share  capital.  For  it  is  not  the 
amount  of  share  capital  which  comes  into  account  in 
determining  the  proper  figiire  for  the  reserve  fund,  but 
the  volume  of  outstanding  liabilities  which  there  may 
be  to  meet.  In  joint  stock  companies  the  share  capital 
is  accepted  as  the  determining  factor,  for  convenience 
sake.  And  in  a  joint  stock  company  also,  which  is  a 
union  of  capitals,  such  practice  will  pass  muster,  be- 
cause the  share  capital  there  constitutes  really  the  ruling 
factor.     But  in  a  co-operative  society  the  share  capital 


A  SHARE  BASIS  67 

is  in  nine  cases  out  of  ten  bound  to  be  small  only,  and 
what  the  bank  subsists  upon  is,  not  its  capital,  but  its 
business.  The  reserve  fund  in  consequence  becomes 
of  all  the  greater  importance.  The  best  co-operative 
banks  are  those  which  have  reserve  funds  in  excess  — 
it  may  be  considerably  in  excess  —  of  their  share  capi- 
tal. The  larger  the  reserve  fund,  the  more  independ- 
ent will  the  bank  be,  because  that  reserve  fund  is  safe 
in  its  hands  and  cannot  be  withdrawn. 

Eeverting  to  the  original  question,  that  of  the  obtain- 
ment  of  money,  there  is  really  nothing  to  add  to  what 
has  already  been  stated  on  that  point  in  the  preceding 
chapter.  The  source  to  be  favoured  above  all  others  is 
that  of  deposits,  be  they  what  are  called  savings  de- 
posits or  be  they  taken  in  larger  sums  for  temporary 
investment,  in  which  latter  case  they  will  probably  be 
time  deposits,  with  a  rate  of  interest  graduated  accord- 
ing to  the  length  of  time  stipulated  for  notice.  And 
the  deposit  counter  should  be  open  to  all,  whether  mem- 
bers or  not.  What  Mr.  Burghardt  du  Bois  says  in  a 
paper  contributed  to  the  Bulletin  of  the  Department  of 
Labor  specifically  with  regard  to  negro  states,  com- 
mending the  studied  thrift  which  enables  negroes  to 
become  small  landowners,  will  probably  bear  a  much 
wider  application :  "  Larger  facilities  and  encourage- 
ments for  saving  in  the  country  districts  and  small 
towns  of  the  South  could  easily  strengthen  and  greatly 
extend  this  spirit  of  thrift."  Co-operative  banks  will 
come  in  very  handy  for  such  purposes.  They  gen- 
erally manage  to  make  themselves  appreciated  as  recep- 
tacles for  savings,  because  they  keep  the  money  col- 


68  CO-OPERATIVE  CREDIT 

lected  in  its  district  and  show  the  public  that  that 
money  goes  to  a  good  and  productive  purpose  that  can 
be  understood.  A  society  properly  constituted  would 
also  be  entitled  to  issue  debentures.  But  it  is  rather 
a  ticklish  thing  for  a  society  of  this  sort  to  bind  itself 
to  long  time  loans  for  any  large  sum.  Deposits  are 
under  its  own  control.  They  may  in  case  of  need  be 
repaid  or  reduced,  or  even  refused.  Eediscounts  by 
the  bank,  which  must  also  be  taken  into  account  as  a 
possible  source  of  cash,  will  only  be  resorted  to  when 
money  is  really  required.  The  bank  itself  will  be  able 
to  regulate  that.  But  it  is  a  risky  business  to  saddle 
oneself  with  money  on  which  interest  has  to  be  paid 
for  a  long  time.  Debentures  are  best  reserved  for 
mortgage  loans.  Once  more,  in  this  respect  a  co-op- 
erative bank  is  placed  in  a  different  position  from  a 
capitalist  bank  —  a  position  which  requires  the  exer- 
cise of  caution.  The  supply  of  cash  will  have  to  be 
kept  under  effective  control. 

To  return  to  the  question  of  shares  —  that  suggests 
the  two  points :  1.  of  the  value  which  is  to  be  given  to 
the  share  and  2.  of  the  liability  to  be  made  to  attach  to 
it.  In  respect  of  liability  the  public  in  the  United 
States  finds  itself  in  a  position  favourable,  in  compari- 
son with  that  of  people  in  the  United  Kingdom,  Italy, 
France  and  western  Europe  generally,  inasmuch  as  it  is 
accustomed  to  liability  exceeding  the  face  value  of  the 
share.  This  may  prove  a  very  valuable  factor  to  em- 
ploy, for  it  improves  credit.  When  co-operative  banks 
were  first  introduced  —  in  Germany  —  limited  liabil- 
ity was  wholly  unknown  and  unrecognised  by  the  law. 


A  SHARE  BASIS  69 

As  a  matter  of  course,  accordingly,  co-operative  banks 
had  to  be  registered  with  unlimited  liability,  and  on  the 
ground  of  certain  advantages  which  it  carries  with  it 
such  form  of  liability  has  grown  dear  to  German  — 
and  in  a  somewhat  lesser  degree  to  Austrian  —  credit 
co-operators.  On  the  face  of  it,  it  is  calculated  to  com- 
mand more  substantial  credit  than  the  share  alone  with 
limited  liability.  The  measure  in  which  the  unpaid-up 
liability  will  be  responded  to  will  indeed  have  to  be 
taken  into  account  as  uncertain,  and  accordingly  in  its 
valuation  a  certain  discount  will  have  to  be  taken  off 
its  face  value.  However,  the  main  object  of  excess  lia- 
bility is  not,  to  stand  for  a  certain  sum  which  may 
eventually  have  to  be  paid  up,  but  to  act  as  a  compel- 
ling check  upon  those  who  ask  for  credit,  to  exercise 
scrupulous  care  in  dealing  with  the  money,  in  other 
words,  as  an  additional  means  of  securing  the  lender. 
With  all  this  it  labours  under  several  disadvantages. 

In  the  first  place  it  affects  the  question  of  dividend 
on  share  capital,  which  under  the  co-operative  princi- 
ple ought  to  be  narrowly  limited,  so  as  not  to  include 
gain  but  merely  the  market  value  of  the  money.  ISTow, 
under  unlimited  liability,  or  in  fact  under  any  liability 
in  excess  of  the  actual  value  of  the  share,  there  is  a 
special  liability  attached  to  the  share,  in  respect  of  the 
risk  incurred,  which  ought  in  fairness  to  be  paid  for, 
just  as  insurance  is.  If  in  a  bank  with  strictly  limited 
liability  the  shareholder  receives  5  per  cent,  on  his 
shares,  that  is  just  the  hire  for  his  money.  If  in  an 
unlimited  liability  bank  he  is  allowed  7  or  10  per  cent., 
the  excess  amount  may  represent  fair  value  for  the  risk 


70  CO-OPERATIVE  CREDIT 

which  he  incurs.  That  is,  however,  a  quantity  very 
difficult  to  determine,  and  the  shareholder  who  receives 
the  higher  rate  is  likely  to  find  himself  saddled  with 
the  odium  of  being  a  grabber  —  at  the  borrower's  ex- 
pense. And  such  example  may  very  well  serve  as  an 
encouragement  to  others,  who  have  not  the  same  excuse, 
to  take  more  dividend  than  is  in  fairness  allowable. 

Xext,  in  a  bank  based  upon  shares,  the  significance 
of  unlimited  liability  is  apt  not  to  be  adequately  real- 
ised. Business  goes  on  in  it  in  its  routine  way,  as  if 
there  were  no  question  of  extra  liability.  Suddenly 
there  comes  a  smash.  People  have  just  been  a  little 
careless,  and  now  they  stand  aghast  at  the  call  unex- 
pectedly made  upon  them!  Such  cases  have  recently 
occurred  in  the  Union  presided  over  —  until  his  death 
—  by  the  late  Dr.  Haas,  in  Germany.  And  the  shock 
produced  —  also  the  damage  —  was  great.  In  a  less 
tragic  way  the  point  was  very  clearly  brought  under 
notice  in  Belgium  a  considerable  time  ago.  Under 
Leon  d'Andrimont's  guidance  the  hanques  populaires 
there  began,  in  faithful  imitation  of  their  German 
model,  with  unlimited  liability.  ISTearly  from  the  out- 
set, however,  there  has  been  a  tendency  towards  limited 
liability,  which  is  in  truth  more  in  keeping  with  the  cus- 
toms of  the  country.  So,  a  long  time  ago,  it  was  pro- 
posed in  one  of  these  banks  to  limit  liability  to  twenty- 
five  times  the  amount  of  the  share.  "  Oh,  dear  no," 
so  members  cried  out  in  protest,  "that  would  be  far 
more  than  we  can  answer  for."  In  their  innocence 
they  took  the  intended  reduction  for  an  expansion; 
they  had  in  fact  failed  to  realise  that  thus  far  they 


A  SHARE  BASIS  71 

had  been  liable  up  to  the  hilt.  In  a  bank  based  en- 
tirely, or  mainly,  upon  unlimited  liability  people  un- 
derstand that  they  are  liable  with  all  that  they  possess 
and  they  act  accordingly,  that  is,  with  extra  caution  — 
which  is  just  what  unlimited  liability  was  adopted  for. 
Under  it,  as  a  realised  engagement,  people  inquire  and 
check,  taking  nothing  for  granted,  and  so  they  keep  the 
concern  safe.  Where  the  main  resource  of  a  bank  is 
a  share  capital,  people  are  apt  to  forget  what  stands 
behind  that. 

There  is  another  point  still  to  enter  into  considera- 
tion. Unlimited  liability  does  not  require  a  multiplic- 
ity of  shares.  That  was  Schulze's  reason  for  limiting 
members  to  one  share  only.  However  he  was  anxious 
to  make  his  members  accumulate  much  money.  They 
were  to  become  capitalists.  Accordingly  he  declared 
himself  in  favour  of  large  shares,  at  least  $125,  but  by 
preference  $250,  which  amount  however  —  since  mem- 
bers might  be  poor  —  very  considerable  time  was  al- 
lowed for  paying  up  in.  (As  a  matter  of  fact  there 
are  shares  down  to  $25 ;  and  Schulze's  Union  now 
allows,  theoretically,  $75  as  a  minimum.)  Schulze's 
avowed  object  was  to  tie  down  members  to  a  long  con- 
tinued practice  of  saving.  In  the  Schiveizerische 
Volhshanh  —  which  is  an  excellent  busiuegs  institution, 
covering  all  Switzerland  by  means  of  its  branches 
formed  essentially  upon  Schulze  lines  though  not  ac- 
tually constituting  a  member  of  his  Union  —  until 
some  years  ago  this  principle  was  carried  to  the  almost 
ridiculous  length  of  allowing  more  than  eighty  years 
for  paying  up  the  1,000  francs  share,  at  the  rate  of  one 


72  CO-OPERATIVE  CREDIT 

franc  a  month.  Very  rightly  have  the  rules  lately 
been  altered.  jSTow,  even  $250  is  not  a  very  large 
amount  to  lay  by  in  a  desired  progress  to  Capitalism  — 
when  the  law  of  most  countries  allows  $1,000  to  be 
amassed  in  shares  —  regardless  of  any  further  amount 
accumulated  in  deposits  or  loan  money.  In  the  United 
Kingdom,  co-operators  now  propose  to  carry  the  figure 
to  $1,500 ;  and  the  Portuguese  Government  has  in 
its  new  Bill  actually  proposed  $5,000.  Therefore 
Schulze's  system  does  not  after  all  quite  realise  his 
ambitious  aim. 

However  the  main  objection  to  unlimited  liability 
raised  in  Western  Europe  was  this,  that  it  commits  peo- 
ple to  an  obligation,  the  occurrence  and  magnitude  of 
which  is  absolutely  not  to  be  foreseen.  Schulze  him- 
self with  all  his  declared  preference  for  it,  described  un- 
limited liability,  accompanied  as  it  is  by  dangers,  as 
a  "  two-edged  sword."  "  Our  people  would  never  have 
joined  an  association  which  threatened  them  vdth  such 
grave  danger "  —  so  wrote  Signor  Ettore  Levi,  ]\I. 
Luzzatti's  brother  in  law,  late  Vice-President  of  the 
Bank  of  Italy,  in  his  excellent  "  Manuale  per  le  Banche 
Popolari."  And  Signor  Giustino  Fortunato,  a  fore- 
most leader  in  the  Italian  co-operative  credit  move- 
ment, declares  that  unlimited  liability  would  have 
made  that  movement  "  absolutely  impossible."  Ac- 
cordingly, when  taking  the  matter  in  hand  in  Italy, 
M.  Luzzatti,  although  in  the  main  features  devotedly 
following  Schulze's  example,  deliberately  limited  lia- 
bility—  limited  it  to  the  actual  value  of  the  share  — 
but  on  the  other  hand  laid  it  down  that,  whatever  the 


A  SHARE  BASIS  73 

amount  of  the  share  might  be,  such  amount  must  be 
paid  up  within  reasonable  time,  by  preference  in  ten 
months.  That  period  has  in  some  cases  been  extended 
to  twenty  months  and  even  more.  The  precise  length 
of  time  is  a  matter  of  detail  and  does  not  affect  the 
principle.  The  essential  point  is  that  the  bank  is 
within  a  reasonable  time  to  be  placed  in  possession  of 
its  money  in  ringing  coin,  converting  Schulze's  ''  bird 
in  the  bush  "  into  a  "  bird  in  the  hand  " ;  and  that  the 
member,  having  paid  his  money,  is  freed  from  all  ul- 
terior liability. 

Xeither  did  M.  Luzzatti  desire  to  see  large  shares. 
Shares  should  in  his  opinion  be  proportioned  to  the  cir- 
cumstances of  each  case.  The  Italian  law,  as  it  hap- 
pens, does  not  allow  shares  larger  than  $20.  But  there 
are  shares  down  to  $1.  So  every  one  can  cut  his  coat 
according  to  his  cloth.  And  if  he  desires  to  invest 
more,  he  is  free  to  acquire  more  shares,  up  to  the  value 
of  $1,000. 

Germany  adheres  in  the  main  to  Schulze's  tenet. 
Schulze  himself,  up  to  a  few  years  before  his  death, 
regarded  the  matter  as  one  of  principle  and  was  only 
late  in  life  prevailed  upon,  seemingly  with  great  re- 
luctance, to  allow  limited  liability  to  be  admissible  at 
all.  Austria,  which  in  other  respects  has  trodden 
faithfully  in  Schulze's  footsteps,  is  wavering.  Else- 
where—  with  the  exception  of  some  co-operative  pur- 
ists, like  the  late  Arrago  Valentini,  who  consider 
unlimited  liability  to  be  the  only  "  co-operative  "  form 
of  liability,  as  really  binding  members  to  one  another 
by  common  interest  as  in  a  true  brotherhood  —  unlim- 


74  CO-OPERATIVE  CREDIT 

ited  liability  is  dreaded  in  this  connection  and,  for 
banks  based  upon  shares,  limited  liability  has  become 
the  standing  rule.  Certainly  results  in  Italy  have 
shown  that  it  is  absolutely  sufficient  for  the  purpose 
kept  in  view;  and  M.  Luzzatti's  small  shares,  quickly 
paid  up,  have  answered  every  bit  as  well  as  Schulze's 
large  ones  with  plenty  of  time  given  —  so  much  so 
that,  as  M.  Luzzatti  has  recently  placed  upon  record, 
the  average  figures  for  accumulation  of  capital,  rela- 
tion of  share  capital  to  loan  capital,  credit  per  mem- 
ber, etc.,  very  nearly  correspond  under  the  two  systems. 

We  have  next  to  think  of  the  employment  given  to 
the  money  collected.  The  proportion  in  which  share 
capital  is  made  to  attract  loan  money  is  very  unequal. 
It  depends  upon  management  and  the  measure  in  which 
good  management  is  made  known  to  the  public ;  and  it 
also  depends  upon  favourable  or  else  unfavourable  cir- 
cumstances. There  are  co-operative  banks  which, 
favoured  by  a  trustful  disposition  of  their  local  public, 
carry  the  proportion  of  loan  money  as  compared  with 
share  capital  up  to  the  ten  and  tweutyfold  —  which  on 
the  face  of  it  is  excessive  and  perilous;  and  there  are 
others  content  with  the  double  or  treble  only,  which  is 
a  very  moderate  proportion.  Loan  capital  in  propor- 
tion to  share  capital  as  five  to-  one  is  generally  con- 
sidered safe  and  permissible.  Of  course  loan  capital 
is  cheaper  than  share  capital ;  but  gainseeking  on  the 
ground  of  such  difference  is  scarcely  good  "  co-opera- 
tion," seeing  that  co-operation  makes  "  safety  "  its  first 
aim. 

There  is  no  reason  why  a  co-operative  bank  based 


A  SHARE  BASIS  75 

upon  shares  should  not  become  for  its  members,  just 
like  a  capitalist  organisation,  a  veritable  bank  for  all 
purposes — barring  the  ambitious  enterprises  for  riskj 
gain  entered  into  by  the  capitalist  institution  with  the 
knowledge  that  there  may  be  loss  resulting  from  them 
as  well  as  profit.  All  risky  operations,  as  we  have 
seen,  must  to  the  co-operative  bank  be  "  taboo."  But 
such  bank  may  institute  drawing  accounts ;  it  may  cash 
and  discount  bills,  and  perform  all  similar  services, 
just  like  an  ordinary  bank,  on  its  own  generally  reduced 
scale.  The  assumption  of  such  character  in  itself  post- 
ulates that  its  main  credit  operations  should  be  based 
upon  personal  security.  "  Banking  is  an  easy  matter 
enough,"  so  Poulett  Thompson,  subsequently  Lord 
Sydenham,  has  laid  it  down  in  what  has  become  an 
accepted  golden  rule  for  English  bankers,  "  once  a  man 
knows  how  to  distinguish  between  a  mortgage  and  a 
bill  of  exchange."  The  "  bill  of  exchange "  —  or, 
which  comes  to  the  same  thing,  the  promissory  note,  or, 
for  the  matter  of  that,  the  acceptance  —  is  the  instru- 
ment upon  which  dealing  in  credit  must  mainly  rest. 
For  that  gives  a  thoroughly  binding,  and  at  the  same 
time  readily  realisable,  effect,  which  everybody  under- 
stands, which  inconveniences  no  one  and  upon  which, 
if  that  should  be  found  desirable,  fresh  money  may  be 
raised  —  at  a  small  profit  to  the  bank.  The  endorse- 
ment will  have  to  be  according  to  requirements.  But 
even  under  the  head  of  credit  on  personal  security  that 
will  not  exhaust  all  that  the  bank  should  make  it  its 
object  to  do.  For  limited  liability  banks,  based  upon 
shares,  the  secured  current  account  —  cash  credit  or 


76  CO-OPERATIVE  CREDIT 

overdraft  —  constitutes  a  most  serviceable  and  conven- 
ient method  of  doing  business.  In  banks  based  wholly, 
or  mainlv,  upon  unlimited  liability,  as  we  shall  still 
see,  the  case  is  distinctly  different.  In  them  overdrafts 
should  form  altogether  the  exception.  But  in  a  share 
bank  there  is  no  reason  —  once  the  means  of  ascertain- 
ing the  financial  value  of  each  member  are  provided  — 
why  this  method  of  doing  business  should  not  be  freely 
resorted  to  for  the  convenience  of  all  concerned. 

That  consideration  raises  a  fresh  point.  In  practice 
the  bank  —  at  any  rate  once  it  has  attained  a  certain 
importance  —  will  find  it  useful  to  practise,  side  by 
side,  two  distinct  methods  of  granting  credit  —  one  on 
the  gTound  of  specific  security  given,  the  other  on  the 
ground  of  the  general  financial  value  of  the  mem- 
ber. In  a  small  bank  such  distinction  may  not  be 
called  for.  In  it  all  business,  being  on  a  reduced  scale, 
will  practically  come  under  the  same  head.  In  a  fair 
sized  bank  it  will  be  a  great  convenience  to  members, 
and  a  distinct  stimulus  to  business,  to  have  a  system  of 
"  financial  rating,"  which  will  serve  as  a  standard  for 
overdraft,  without  further  to  do.  And  in  a  bank  of 
the  type  at  present  discussed  there  wall  be  no  danger 
in  this.  That  does  not  prejudge  the  question  of  secur- 
ity. It  will  be  well  in  all  cases  to  have  the  backing  of 
one  or  two  friends  or  else  some  other  security,  if  it 
were  only  to  accustom  members  to  the  practice  of  giv- 
ing security.  But,  in  addition,  it  makes  the  loan  more 
readily  realisable  and  security  doubly  sure.  In  Ger- 
many it  is  common  to  ask  for  an  undated  promissory 
note  for  every  overdraft,   which  note  may  be  subse- 


A  SHARE  BASIS  77 

quently  dated  by  the  bank,  as  occasion  may  require, 
and  presented  in  case  of  anything  happening  which 
entitles  the  bank  to  withdraw  the  overdraft.  How- 
ever, at  the  bank's  option  —  supposing  that  it  considers 
such  practice  safe  —  on  the  ground  of  "  financial  rat- 
ing," security  may  also  be  dispensed  with.  As  a  gen- 
eral rule  the  "  rating  "  is  kept  secret  —  that  shows  its 
twofold  use.  It  is  not  necessarily  meant  to  ensure  to 
the  member  an  enforceable  claim.  That  is  done  in  some 
banks  in  Italy,  where  every  member  is  advised  of  his 
owm  credit  limit.  Should  he  require  a  larger  credit, 
he  will  be  free  to  arrange  with  other  members  for  ob- 
taining their  signatures,  and  with  it  their  title  to  credit 
—  for  which  of  course  those  other  members  will  make 
themselves  liable  —  to  add  to  his  own.  In  this  case 
A.,  with  a  credit  limit  of  $2,000,  B.,  with  such  of 
$1,500,  and  C,  with  such  of  $3,000,  may  combine  to 
enable  one  of  the  three  to  claim  on  the  threefold  signa- 
ture a  credit  of  $6,500.  Such  practice  is  however  not 
altogether  to  be  commended.  It  introduces  a  mechan- 
ical element  where  discrimination  —  in  every  particu- 
lar case  —  is  essential.  And  it  is  liable  to  the  abuse  of 
members  selling  their  signatures  for  a  consideration. 
(In  connection  with  this  it  may  be  not  out  of  place 
to  mention  that,  at  any  rate  in  the  past,  co-operative 
banks  in  which  oversight  was  lax,  have  here  and  there 
been  taken  advantage  of  by  the  moneylending  com- 
munity for  obtaining  cheap  money  under  a  pretence 
of  co-operation,  wherewith  to  trade  individually  at  a 
profit.  In  some  countries,  for  instance  in  Galicia,  such 
abuse  is  said  to  occur  even  at  the  present  time.     It 


78  CO-OPERATIVE  CREDIT 

need  not  be  pointed  out  that  as  much  as  possible  every 
crevice  ought  to  be  carefully  closed  against  anything 
coming  near  this.)  More  generally  the  "rating"  list 
is  kept  strictly  secret,  nobody  but  the  members  of  the 
Committee  and  the  managing  director  being  admitted 
to  a  sight  of  it,  and  it  simply  serves  the  managing 
director  as  a  guide  in  his  conduct  of  the  business,  so 
far  as  a  discretion  is  allowed  him.  In  fair  sized  banks 
the  task  of  appraising  members  for  credit  is  committed 
to  a  distinct  committee  pledged  to  secrecy.  In  small 
banks  the  Committee  may  take  charge  of  it  along 
with  its  other  duties.  It  needs  not  to  be  added  that 
the  list  wants  to  be  carefully  revised  from  time  to 
time. 

Special  provision  requires  to  be  made  with  regard 
to  "  financial  rating,"  so  far  as  members  of  the  gov- 
erning bodies  of  the  bank  come  into  account.  To  re- 
fuse to  such  altogether  the  right  to  raise  money  on 
credit  through  the  bank  which  they  administer  would 
amount  to  a  measure  of  hardship  unfair  in  itself  and 
by  which  the  bank  would  be  likely  to  suffer.  For  good 
capable  men  fit  for  such  service  may  not  be  overplenti- 
ful  and  the  disqualification  might  deter  good  men  from 
offering  themselves.  On  the  other  hand  it  is  but  fair 
to  say  that  in  some  cases  where  proper  precautions 
have  not  been  taken,  office  bearers'  access  to  credit  has 
been,  even  grossly,  abused  and  the  bank  affected  has 
been  led  into  difficulties.  The  course  most  commonly 
resorted  to  to  regulate  this  matter  is,  to  appoint  a  spe- 
cial committee  charged  with  nothing  but  appraising 
members  of  the  governing  bodies  —  which  bodies  must 


A  SHARE  BASIS  79 

not  of  course  be  represented  on  such  committee.  In 
small  banks  this  method  might  prove  inconvenient  and 
unwieldy.  But  in  them  also  danger  would  be  likely 
to  be  less.  There  the  two  governing  bodies  might  be 
allowed  to  judge  in  common,  in  the  absence  of  the  ap- 
plicant, or  else,  in  very  small  banks,  the  case  might 
be  referred  to  a  special  general  meeting. 

All  that  has  thus  far  been  spoken  of  refers  to  a  gen- 
eral allowance  of  credit,  on  the  ground  of  possessions 
or  of  character.  Specific  loans,  to  be  granted  on  dis- 
tinct security,  will  have  to  be  judged  on  their  own  in- 
dividual merits.  And  any  excess  credit  which  "  rated  " 
members  may  ask  for,  will  have  to  be  dealt  with  in 
the  same  way.  Provided  that  there  is  money  available, 
every  security  should  command  its  own  credit.  Sup- 
posing that  the  man  "  rated  "  at  $200  offers  a  good  ap- 
proved bill  for  $5,000,  provided  that  the  money  is 
there,  he  is  entitled  to  have  it  discounted. 

That  calls  for  the  interpolated  remark,  that  in  a 
co-operative  bank  —  intended,  as  it  is,  to  make  credit 
accessible  to  small  folk,  who  would  not  be  able  to  obtain 
it  by  other  means  —  credit  should  not  be  allowed  to  run 
lumpy.  Every  claimant  should  have  an  equal  chance. 
No  monopoly  or  quasi-monopoly  can  be  permitted. 
There  is  no  room  there  for  the  worship  of  the  golden 
calf.  And  in  general,  whenever  there  is  competition, 
small  loans  should  be  given  the  preference  over  large  — 
let  alone  that  by  reason  of  their  subdivision  they  are 
reckoned  safer.  But  apart  from  this,  the  man  who 
wants  a  large  loan  is  more  likely  than  the  applicant 
for  a  small  one,  to  obtain  what  he  wants  elsewhere. 


80  CO-OPERATIVE  CREDIT 

Indeed,  he  may  conceivably  obtain  it  on  more  favour- 
able terms  elsewhere. 

One  would  not  wish  to  have  length  of  time  judged 
by  the  same  rule.  No  doubt  a  short  term  loan  is,  other 
things  being  equal,  considered  safer  than  a  long  term 
one.  But  that  is  not  the  only  consideration  to  be  taken 
into  account.  The  man  with  the  long  term  applica- 
tion is  likely  to  have  less  prospect  of  being  accom- 
modated for  such  long  term  elsewhere;  and  the  par- 
ticular type  of  loan  that  he  asks  for  may  be  just  of  the 
sort  that  a  co-operative  bank  is  formed  to  favour. 

The  granting  of  loans  raises  as  a  corollary  the  ques- 
tion of  the  security  on  which  they  are  to  be  granted. 
There  may,  as  has  been  already  observed,  in  some  cases 
be  a  waiving  of  security  altogether.  That  is  appre- 
ciated as  a  valuable  convenience  to  members.  But  it 
is  apt  to  prove  conducive  to  lax  practice,  and  in  any 
case  it  leaves  the  bank  without  a  pledge  to  repledge 
in  case  of  need.  It  will  therefore  certainly  have  to  be 
employed  with  great  circumspection  and  sparingly. 

There  is  one  class  of  security,  very  tempting  at  the 
outset,  against  which  organisers  of  co-operative  banks 
ought  to  be  warned.  That  is,  any  shares  held  in  the 
bank  asked  to  make  the  advance.  So  tempting  is  lend- 
ing upon  such  shares  felt  to  be,  that  in  some  banks 
members  are  allowed  to  raise  money  upon  them,  even 
in  excess  of  their  face  value,  the  care  exercised  in  elect- 
ing the  member  being  held  to  stand  for  additional 
security.  As  a  matter  of  course  the  bank  should  have 
a  standing  lien  upon  every  share  that  it  issues  —  which 
share,  so  it  will  be  well  to  remember,  must  not  be  nego- 


A  SHARE  BASIS  81 

tiable,  and  transferable  only  with  the  consent  of  the 
bank  previously  obtained.  But  the  shares  returned  to 
the  bank  cease  to  have  for  it  any  value  for  business 
purposes.  They  simply  indicate  that  the  owner  has 
lost  his  rights  as  member  of  the  bank.  Shares  are  of 
value  to  the  bank  while  they  are  in  members'  hands, 
in  which  case  the  bank  holds  the  money  paid  for  them, 
possibly  with  additional  liability  attaching  to  them. 
In  its  owTi  hands  they  are  mere  paper.  A  bank  all 
shares  and  no  money  would  be  a  mere  name.  So  es- 
sential, indeed,  is  it  rightly  held  to  be  that  a  sufficiency 
of  shares  should  be  placed  with  members,  that  well 
organised  banks  —  like  the  Schweizerische  VolJcshank 
—  make  it  an  instruction  to  the  Committee,  in  the 
event  of  such  sufficiency  being  endangered  by  notices 
of  withdrawal  —  where  withdrawal  is  allowed  —  at 
once  to  summon  a  general  meeting,  to  decide  whether 
the  bank  is  to  go  on  or  to  wind  up  before  the  threatened 
withdrawal  has  taken  place.  This  is  altogether  inde- 
pendent of  the  usual  legal  proviso  that  in  the  event  of 
the  number  of  members  falling  below  the  statutory 
number  the  registration  of  the  society  shall  be  cancelled. 
As  regards  withdrawableness  of  shares,  no  universal 
rule  can  be  laid  down.  Under  the  British  Industrial 
and  Provident  Societies  Act  no  share  is  allowed  to  be 
withdrawable.  Elsewhere  withdrawableness  is  appre- 
ciated. Whatever  be  laid  down  with  regard  to  with- 
drawal, a  share  must  not  in  any  case  be  transferable 
without  the  bank's  consent.  To  make  it  even  only 
practically  so,  has  led  to  serious  abuses  in  some  few 
Italian  banks  where,  dividend  being  high,  co-operative 


82  CO-OPERATIVE  CREDIT 

bank  shares  are  openly  dealt  in  at  a  premium  in  the 
market.  That  is  as  un-'^  co-operative "  as  anything 
can  be  and  leads  to  what  the  late  Father  de  Besse,  a 
prominent  champion  of  co-operative  credit  in  his  life- 
time, has  termed  "  attempting  to  fight  usury  by  prac- 
tising it."  Under  the  German  law,  which  is  generally 
good  and  well  considered,  the  pledging  of  shares  of 
co-operative  banks  is  altogether  prohibited. 

As  already  stated,  the  form  of  security  favoured 
should  be  personal.  However  it  is  downright  impos- 
sible, even  in  a  bank  shaping  its  business  as  much  as  is 
practicable  on  the  model  of  ordinary  bank  practice,  alto- 
gether to  keep  out  pledge  security.  Even  a  trade  bill 
—  which  is  by  far  the  best  kind  of  security  that  a  bank 
could  take  —  brought  for  discount  is  after  all  a 
pledge  to  the  bank,  although  the  security  pledged  in 
respect  of  it  is  purely  personal.  Mortgages  or  real 
security  should  be  as  much  as  possible  avoided,  as  con- 
stituting very  inconvenient  pledges.  Even  such  how- 
ever occur  in  actual  practice.  But  they  should  be  kept 
down.  However  public  and  private  securities,  bank- 
able paper  of  all  sorts,  afford  very  good  and  convenient 
security,  which  ought  to  be  welcomed.  In  German 
credit  associations,  the  managers  of  which  aim  at  mak- 
ing their  institution  as  much  as  possible  resemble  ordi- 
nary banks  —  except  for  maintaining  the  underlying 
governing  principle  —  the  list  of  favoured  pledges  gen- 
erally ends  at  this  point.  In  Italy  and  some  other 
countries,  where  there  are  more  small  people  to  con- 
sider, a  good  deal  more  pledge  credit  is  permitted  and 
even  favoured.     And  very  rightly  so.     Eor  these  banks 


A  SHARE  BASIS  83 

are  formed  to  supply  the  wauts  of  small  people  and 
they  must  not  allow  their  ambition  to  become  like  other 
banks  to  stand  in  the  way  of  their  realisation  of  that 
aim.  Even  dock  warrant  credit,  so  to  call  it  {war- 
rantage),  which  is  much  practised  in  France  and  con- 
sists mainly  in  the  pledging  of  agricultural  chattels 
and  produce,  with  or  without  surrender  of  the  custody 
of  the  pledge  to  the  lender,  is  not  held  to  be  enough. 
Such  credit,  in  truth,  has  some  serious  drawbacks  at- 
taching to  it  and  is  not  generally  liked.  But  the  banks, 
so  far  as  they  lay  themselves  out  for  really  "  people's  " 
banking,  catering  for  small  folk,  seeing  that  they  have 
to  provide  for  all  sorts  of  humble  wants  —  purchase  of 
tools  and  implements  of  sewing  machines,  of  provisions, 
payment  of  rent,  holding  over  of  goods,  all  the  humble 
wants  in  fact  that  poverty-stricken  flesh  is  heir  to  —  of 
necessity  have  to  vary  their  requirements  as  to  security 
in  a  corresponding  way.  A  tradesman  or  mechanic 
having  an  account  against  a  customer;  a  contractor 
executing  some  job,  building  or  otherwise,  for  another 
person;  a  peasant  tending  his  cocoons  or  holding  over 
his  produce  —  whatever  the  want  may  be,  the  small 
man's  bank  is  ready  to  make  the  necessary  advance  upon 
the  security  indicated,  provided  that  the  maturing  as- 
set is  verified  as  good,  or  the  goods  are  shown  to  be 
there.  The  contractor  will  have  to  bring  a  certificate 
from  his  customer  to  show  that  the  claim  is  genuine, 
to  obtain  —  say  —  the  amounts  periodically  required 
for  paying  for  material  or  wages  —  always  supposing 
that  both  claimant  and  certifying  patron  are  judged  to 
be  trustworthy.     That  is  a  form  of  credit  which  it  is 


84  CO-OPERATIVE  CREDIT 

now  sought  to  develop  largely  in  Italy,  in  a  different 
way,  but  also  in  the  service  of  Co-operation,  by  means 
of  a  bank  endowed  by  the  Government  with  $1,600,000. 
There  are  a  considerable  number  of  builders'  and 
navvies'  societies  in  Italy,  which  have  constituted  them- 
selves self -employers,  taking  over  contracts  —  some  of 
them  of  importance,  like  the  Castle,  a  water  tower  and 
a  cemetery  wall  in  Milan,  a  building  of  the  Mint  and 
gi'eat  sewage  works  in  Rome,  and  some  short  railways 
—  directly  from  private  persons  or  public  authorities, 
which  they  are  generally  found  to  execute  to  full  satis- 
faction. Their  weak  point  is,  of  course,  at  any  rate 
initial  want  of  capital.  Co-operative  banks  have  as- 
sisted them  to  the  loan  of  such,  as  well  as  well  inten- 
tioned  private  capitalists,  lind  they  have  generally 
turned  such  loans  to  good  account.  By  this  means  a 
new,  promising  prospect  has  been  opened  to  the  Italian 
working  classes  and  a  healthy  improvement  of  their 
condition  has  been  brought  about.  The  new  bank,  at 
Eome,  which  is  authorised  to  do  all  classes  of  banking 
business,  was  particularly  formed  to  assist  such  societies 
with  capital  on  the  security  of  the  work  in  progress. 
In  France,  a  bank  formed  and  directed  by  co-operative 
working  men's  productive  associations  supports  such 
associations  in  the  same  way,  Avith  a  view  to  accelerat- 
ing the  emancipation  of  labour.  In  Italy  a  tradesman 
or  woman,  doA\Ti  to  a  milliner  or  laundress,  having  a 
claim  against  a  customer,  may  in  the  same  way  have 
such  claim  discounted  by  his  or  her  hanca  popolare, 
provided  that  such  claim  is  first  verified.  ]Many  are 
the  sewing  machines  which  have  been  provided  by  co- 


A  SHARE  BASIS  85 

operative  banks  for  poor  woraen  to  enable  them  to 
earn  a  living.  The  late  Leon  d'Andrimont  told  the 
story  —  one  among  many  —  of  a  poor  hawker  in  Liege, 
who  used  a  barrow  hired  at  6  cents  a  week,  but,  being 
told  of  the  People's  Bank,  took  up  a  loan  there,  which 
secured  him  full  possession  of  a  barrow  of  his  own  in 
less  than  a  year,  he  still  paying,  for  that  limited  time 
only,  the  same  6  cents  a  week.  Similar  things  are,  of 
course,  done  in  the  agricultural  calling  —  or,  let  us 
rather  say,  in  a  wider  range,  amid  rural  surroundings. 
There  are  substantial  wants  to  be  satisfied  there,  and 
there  are  also  very  moderate  ones.  The  aim  of  the 
bank  is  to  satisfy  them  all.  In  Germany  many  a  co- 
operative dairy  has  been  set  up  with  money  advanced 
by  the  co-operative  bank,  to  be  repaid  by  a  levy  of  so 
much  for  every  gallon  of  milk  used.  In  Denmark 
dairies  have  been  started  in  the  same  way ;  however,  no 
co-operative  bank  being  present,  with  the  help  of  loans 
from  private  capitalists.  And  there  are  very  humble 
banks  with  small  folk  for  members,  taking  up  very 
small  shares  down  to  $1,  doing  much  business  on  sim- 
ilar, although  financially  reduced,  lines.  Some  of 
these  banks  for  all  their  modesty  occupy  large  districts. 
That  makes  the  service  rather  more  expensive;  but  it 
satisfies  a  want  which  is  not  otherwise  to  be  satisfied. 
And  the  money  lent,  say,  at  6  per  cent.,  is  still  much 
cheaper  than  what  the  borrower  could  obtain  from 
other  quarters.  As  far  as  is  possible,  for  such  small 
loans  —  just  as  for  larger  —  the  security  taken  is  per- 
sonal —  two  or  three  other  people  vouching  for  the 
borrower.     But  there  will  generally  be  a  lien  upon  the 


86  CO-OPERATIVE  CREDIT 

object  bought,  which  constitutes  it  a  pledge  —  and,  let 
me  add,  though  collateral  in  form,  in  fact  often  re- 
garded as  the  main  security.  Otherwise  the  favourite 
record  of  a  loan  is  a  bill  or  promissory  note,  which 
makes  both  lending  and  recovery  easy  and  is  negotiable 
for  the  obtainment  of  fresh  money. 

Business  being  mainly  based  upon  personal  security, 
it  is  very  important  that,  if  possible,  a  record  should 
be  kept  of  both  borrowers  and  their  sureties  —  even  if 
the  latter  be  non-members,  which  is  perfectly  admis- 
sible —  so  as  to  have  a  clue  to  their  habit  of  honouring 
liabilities.  This  is  done  in  not  a  few  of  the  larger 
banks,  sometimes  with  the  aid  of  a  distinct  committee, 
which  in  Italy  goes  by  the  name  of  "  the  Committee 
of  Risks."  A  record  is  kept  of  the  punctuality  ob- 
served in  the  payment  of  amounts  due,  of  any  trouble 
occasioned,  and  anything  else  that  may  become  known 
that  concerns  the  value  of  the  borrower  or  his  surety 
as  a  borrower  or  endorser,  in  order  that,  upon  a  fresh 
transaction  being  proposed,  managers  may  be  able  to 
judge  from  the  past,  whether  they  have  good  men  to 
deal  with  or  questionable.  All  this  tends  to  security. 
And  it  helps  not  a  little  to  educate  the  untrained  popu- 
lation to  businesslike  habits. 

It  remains  to  describe  briefly  the  organisation  of 
co-operative  banks  of  this  type.  The  object  aimed  at 
must  be  to  combine  capacity  for  prompt  action  with 
careful  control  and  checking.  The  best  organisation 
under  this  aspect  is  that  which  the  law  of  1889  — 
which  is  generally  a  good  law  —  has  made  obligatory 
in  Germany.     In  its  main  features  it  has  found  a  sort 


A  SHARE  BASIS  87 

of  replica  in  the  Austrian  law,  which  is  likewise  gen- 
erally good.  The  form  of  organisation  adopted  in 
Italy,  and  subsequently  copied  from  the  Italian  pro- 
totype in  some  other  countries,  is  in  truth  only  an 
adaptation  of  the  older  German  type  of  organisation, 
since  discarded.  The  main  difference  is  that  in  Ger- 
many and  Austria  the  Managing  Committee  —  cor- 
responding, as  has  already  been  explained,  to  the 
"  managing  director  "  of  a  company  —  and  the  Council 
of  Supervision  —  which  in  the  same  way  corresponds 
to  the  "  Board  of  Directors  "  —  are  essentially  distinct 
bodies,  none  of  whose  members  may  at  the  same  time 
form  part  of  the  other  body;  whereas  in  Italy  and  the 
countries  following  its  lead  the  managing  executive 
is  elected  from  out  of  the  midst  of  the  Council,  elected 
by  the  members  at  the  General  Meeting  as  the  General 
Committee.  Inasmuch  as  the  office  of  the  Executive 
is  to  manage,  and  that  of  the  Council  to  check,  quite 
evidently  it  is  preferable  that  the  two  should  be  per- 
fectly distinct,  the  one  being  in  a  manner  responsible 
to  the  other.  Such  arrangement  also  permits  freer 
play  to  be  given  to  the  principle  already  pleaded  for, 
that  the  managing  body  of  the  bank  should  be  able  to 
deal  promptly  with  any  application  coming  before  it. 
For  the  Managing  Committee  will  have  to  be  in  fre- 
quent, it  may  be,  daily  attendance,  whereas  the  Gen- 
eral Committee  or  Council  will  meet  only  at  compara- 
tively long  intervals.  Under  such  arrangement  the 
managing  body  may  be  small,  being  on  the  other  hand 
accountable  to  a  much  larger  body,  the  very  largeness 
of  which  is  sure  to  invest  it  with  greater  authority. 


88  CO-OPERATIVE  CREDIT 

Outside  Germany,  where  the  older  method  of  organisa- 
tion has  been  retained,  the  nimierical  position  of  the 
two  bodies  is  sometimes  reversed,  that  is  to  say,  there 
is  a  comparatively  large  body  to  administer  and  a 
smaller  body,  of  three  ceriseurs,  or  it  may  be  only  one, 
to  check  and  examine.  Very  little  argument  ought  to 
be  necessary  to  demonstrate  that,  although  with  good 
will  and  anxiety  for  the  best  interests  of  the  bank,  this 
arrangement  may  be  made  to  work  well  —  as  in  fact 
it  has  done  in  many  cases  —  the  other  is  greatly  prefer- 
able. Tor  the  sense  of  responsibility,  and  also  the 
possibility  of  holding  men  to  it,  will  be  greater  in  a 
small  body  of  managers  than  in  a  large,  and,  on  the 
other  hand,  the  authority  of  a  large  body  exercising 
control,  will  carry  far  greater  weight.  In  Germany, 
in  these  share  banks,  there  are  three  managing  direc- 
tors, skilled  men,  appointed  for  as  long  as  they  give 
satisfaction,  and  salaried  according  to  the  time  that 
they  are  required  to  give  up  to  their  work.  In  banks 
of  any  pretensions  that  will  be  their  whole  time.  They 
are  nominated  by  the  elected  Council  (representing  the 
Board  of  Directors)  and  are  removable  by  the  same 
authority.  If  they  are  not  already  members  of  the 
bank  they  are  required  to  become  so.  But  they  are 
appointed  on  the  ground  of  their  banking  capacity, 
whether  already  members  or  not.  They  act  as  one 
body,  every  exercise  of  their  power  requiring  a  signa- 
ture at  all  having  to  be  signed  by  at  least  two  of  them. 
That  secures,  together  with  responsibility  capable  of 
being  brought  home  for  each  act,  the  great  requisite  of 
"  efficiency."     The   Council,   on  the  other  hand,  con- 


A  SHARE  BASIS  89 

trolling  them  on  behalf  of  the  members,  will  under  such 
circumstances  act  with  the  greatest  authority  possible 
and  will,  on  the  face  of  it,  be  committed  to  and  in- 
terested in,  efficient  control  of  just  that  sort  that  is 
here  required.  That  means  that  it  is  not  only  to  audit 
and  verify  entries  —  although  that  will  be  part  of  its 
duties;  but,  in  a  bank  of  any  size  that  part  of  the 
control  will  much  the  best  be  left  to  a  skilled  accountant 
acting  under  the  Council  —  but  to  judge  whether  the 
Managing  Committee  have  properly  exercised  their 
discretionary  powers,  lent  to  the  right  persons  —  or 
rather,  not  lent  to  the  wrong  ones;  lent  the  proper 
amounts ;  taken  adequate  security,  and  kept  it  up  at  the 
point  of  adequacy;  whether  borrowers  have  observed 
their  engagements  with  regard  to  employment  and  re- 
pa;)Taent  and  so  on.  To  do  all  this  a  body  endowed 
with  authority  is  needed.  A  single  censeur,  or  three 
censeurs,  could  not  do  it  with  the  same  weight.  The 
arrangement  also  emphasises  the  fact  that  the  controll- 
ing Council  represents  the  great  body  of  members  and 
acts  on  their  behalf,  overhauling  things  in  their  inter- 
est, in  order  to  present  to  them  at  the  annual  meeting 
a  separate  Report,  distinct  from  that  of  the  managing 
body,  a  kind  of  precognition,  making  whatever  has 
happened  more  readily  intelligible  to  the  body  of  mem- 
bers, for  whom  of  «)urse  supreme  authority  in  all 
things  must  be  reserved,  but  who  are  necessarily  un- 
familiar with  details  —  and  possibly  also  with  ac- 
counts. Thus  you  have  the  best  executive  body  that 
you  can  obtain,  balanced  by  the  most  efficient  controll- 
ing body. 


90  CO-OPERATIVE  CREDIT 

Under  the  other  arrangement  good  work  has  been 
done.  Good  men,  devoted  to  their  duty,  may  make 
almost  any  system  answer.  But  there  is  less  certainty 
of  its  working  well,  as  experience  has  shown.  M.  Luz- 
zatti  himself  has  admitted  that,  excellent  as  are  his  best 
banks  —  he  places  them  above  the  German  —  the  gen- 
eral standard  does  not  in  Italy  come  up  to  the  German. 
That  is  mainly  owing  to  the  absence  of  Union  control. 
But  the  particular  form  of  organisation  employed  must 
likewise  count  for  something  in  the  result.  Practically 
the  Italian  direttore,  a  salaried  officer,  appointed,  like 
the  German  managers,  as  a  permanent  official,  with  the 
help  of  his  salaried  staff  and  the  unsalaried  sindaco  — 
one  of  three  sindaci  elected  annually,  with  two  deputies 
to  replace  them  in  case  of  need,  out  of  the  General 
Committee  —  does  the  same  work  as  the  German  three 
men,  and  when  he  is  a  good  man,  he  does  it  well. 

The  number  of  three,  common  in  Germany,  as  con- 
sidered the  most  suitable,  is,  by  the  way,  not  prescribed 
by  the  law;  there  might  be  only  two,  the  one  to  check 
the  other,  or  there  might  be  more.  However  in  prac- 
tice three  have  been  found  to  answer  best.  The  Italian 
sindaco  represents  the  Committee.  But  his  work  is, 
for  an  unsalaried  officer,  exacting,  and  the  frequent 
changes,  as  sindaco  replaces  sindaco,  might  lead  to  a 
want  of  continuity,  or  else  make  the  oversight  exer- 
cised illusory.  The  sindaco's  placet  is  necessary  for 
everything  that  is  done,  and  his  signature  in  approval 
of  what  has  been  done  of  course  clears  the  permanent 
officer,  the  direttore.  In  Belgium  banks  have  con- 
tented themselves  with  only  one  censeur,  who  is  prac- 


A  SHARE  BASIS  91 

tically  an  auditor.  He  could  not  "  sit  upon  "  the  Com- 
mittee for  trusting  Robineau  or  Grosjean  to  excess; 
but  he  sees  carefully  enough  that  figures  and  cash  are 
correct. 

In  all  such  arrangements  for  management  consider- 
ation must  be  taken  for  local  peculiarities,  whether  the 
bank  in  question  be  large  or  small,  and  situated  in  a 
rural  district  or  in  an  industrial  centre.  The  smaller 
the  bank,  the  simpler  may  the  arrangements  adopted 
be,  and  unsalaried  officers  may  replace  salaried.  The 
larger  the  bank,  and  the  more  varied  is  its  business,  the 
more  composite  will  have  to  be  the  administering  and 
checking  apparatus.  There  will  have  to  be  more  offi- 
cers, more  committees,  more  special  funds  and  special 
accounts,  and  salaried  service  will  become  a  necessity. 
A  salaried  officer  of  course  will  be  all  the  more  sub- 
ject to  being  called  to  account.  The  two  great  points 
to  be  kept  steadily  in  view  are  that  there  should 
be  an  efficient  administering  body,  with  power  to  act 
promptly,  and  a  superior  body  exercising  effective  con- 
trol. Whether  the  officers  composing  the  last  named 
body  are  remunerated  or  not  —  if  they  should  be,  it 
will  be  best  to  remunerate  them  according  to  attend- 
ances —  is  a  matter  not  affecting  principle,  which 
ought  to  be  decided  according  to  the  amount  of  work 
required  of  them  and  the  resources  of  the  bank.  Gen- 
erally speaking,  in  a  large  bank,  doing  an  active  and 
varied  business,  the  biblical  precept  which  Schulze 
habitually  quoted  will  be  in  place,  that  "  the  labourer 
is  worthy  of  his  hire."  But  this  principle  should  not 
be  pushed  too  far.     In  any  case  it  will  be  questionable 


92  CO-OPERATIVE  CREDIT 

practice  to  allow  remuneration  by  commission,  whether 
on  business  or  on  profits.  Of  the  two  of  course  com- 
mission on  business  is  the  worst,  as  inciting  to  the  cul- 
tivation of  business  for  business'  sake,  no  matter 
whether  profitable  or  otherwise,  such  as  has  wrecked 
banks.  But  commission  on  profit  likewise  has  its 
points  of  danger,  as  tending  to  make  services  costly 
which  the  bank  was  formed  to  make  cheap,  in  order 
that  there  may  be  more  profit,  in  other  words,  exploit- 
ers and  exploited.  In  Italy  and  Belgium  a  sufficient 
supply  of  thoroughly  qualified  men  to  do  General  Com- 
mittee work  without  remuneration  and  willing  to  serve 
has  never  been  wanting. 

One  little  item  of  specifically  Italian  co-operative 
bank  work  it  may  be  well  just  to  mention.  In  Ger- 
many Schulze  would  not  have  very  poor  folk,  dependent 
upon  assistance,  in  his  banks.  M.  Luzzatti  took  a  more 
philanthropic  view.  Philanthropy  is  in  Italy  held  to 
form  part  of  Co-operation.  And  to  do  justice  to  that 
principle  M.  Luzzatti  recommended  that  part  of  the 
profits  of  co-operative  banks  should  be  devoted  to  works 
of  educative  charity.  He  introduced  the  "  Loan  of 
Honour  "  —  which  is  very  like  the  lending  done  by 
"  Kemedial  Loan  Societies,"  only  that  it  dives  lower 
down  and  often  dispenses  with  interest  altogether  for 
loans,  which  appear  to  be  generally  honestly  repaid. 
The  beneficiaries  are  very  small  men,  but  accepted  on 
the  ground  of  their  supposed  deservingness,  which  often 
enough  Friendly  Societies  are  called  in  to  adjudicate 
upon.  The  practice  is  highly  praised  by  its  cham- 
pions, but  it  has  remained  small  in  extent  and  bank 


A  SHARE  BASIS  93 

managers  have  explained  to  me  that  they  keep  it  up  — 
where  they  do,  which  is  in  very  few  banks  —  more  to 
give  M.  Luzzatti  pleasure  than  for  any  other  reason. 

Banks  of  the  type  here  described  will,  as  has  been 
already  pointed  out,  serve  both  an  industrial  and  an 
agricultural  or  rather  rural  clientele  or  membership 
equally  well.  And  the  system  will  do  both  for  small, 
even  very  small,  and  for  very  large  banks,  as  for  in- 
stance such  giant  banks  as  those  of  Milan  and  of  Leip- 
zig or  Augsburg.  The  last  named  is  mainly  agricultural 
and  by  reason  of  its  ramifications  serves  the  best  part  of 
a  large  province. 

Such  extension  of  business  calls  for  some  special 
arrangements  which  deserve  noticing.  Membership  in 
such  cases  is  widely  scattered  and  of  course,  in 
comparison  with  urban  populations  relatively  sparse. 
It  is  therefore  impossible  for  one  administrative  staff 
without  assistance  to  overlook  and  control  the  whole. 
In  Italy  banks  in  similar  positions  form  branch 
establishments  for  distinct  districts  which  eventually 
sometimes  develop  into  independent  banks,  not  as 
a  matter  of  mutinous  secession,  but  for  mutual  con- 
venience. In  Germany  headquarter  staffs  like  to  keep 
government  altogether  in  their  own  hands.  But  they 
establish  their  hold  upon  districts  by  means  of  local 
committees  or  else  local  agencies,  with  unrevealed 
confidential  advisers  to  supplement  their  services. 
The  latter  report  to  headquarters.  So  do  the  agencies 
and  local  committees,  both  of  which  are  authorised 
to  accept  monies,  be  it  as  deposits  or  be  it  as  repay- 
ments, being  allowed  a  trifling  percentage  upon  them, 


94  CO-OPERATIVE  CREDIT 

as  a  reward  for  their  trouble.  Furtbermore  they  are 
to  receive  applications  for  loans,  which  they  forward 
to  headquarters  together  with  their  remarks  upon 
them,  as  to  the  substance  and  trustworthiness  of  the  ap- 
plicant and  the  propriety  of  the  application,  to  their 
thinking.  Where  the  local  representative  of  a  bank  is 
a  committee,  such  remarks  are  sent  up  in  closed  letters, 
every  member's  observations  by  themselves,  without  be- 
ing communicated  to  his  colleagues.  In  any  case  the 
head  office  reserves  to  itself  the  decision  as  to  granting 
the  loan  or  not,  on  the  ground  of  the  information  com- 
municated to  it  and  any  other  information  that  it  may 
possess.  This  system  has  worked  well,  and  under 
it  signal  services  have  been  rendered  to  agriculture. 


CHAPTER  IV 

CO'-OPEBATIVE    BANKS    BASED    UPON    UNLIMITED 
LIABILITY 

Highly  useful  as  the  system  of  co-operative  banking 
discussed  in  the  preceding  chapter  unquestionably  is, 
it  is  not  every  one  who  is  in  a  position  to  take  advan- 
tage of  it.  There  are  millions,  more  particularly  in 
country  districts,  to  whom  the  demand  made  for  a 
share  to  be  taken  up  for  cash  must  form  a  forbidding 
obstacle,  and  who  have  not  quick  business  enough  to 
bring  to  the  bank  to  keep  it  steadily  employed.  Their 
loans  are  likely  to  be  few  and  far  between,  for  long 
terms,  during  which  the  bank's  counters  will  remain 
unfrequented  by  them.  Also,  among  the  untutored 
sons  of  the  soil  there  are  many  indeed  who  shrink  from 
signing  a  bill  or  a  promissory  note  binding  them  to 
repay  under  penalty  on  a  particular  day.  They  can- 
not tell  at  what  precise  moment  their  money  will  be 
coming  in,  and  the  necessity  to  realise  produce  for  the 
sake  of  keeping  a  fixed  term  is  just  what  they  wish  to 
escape  from.  And  these  are  precisely  the  people  who 
need  the  financial  help  of  co-operative  credit  most. 
For  them,  accordingly,  a  different  system  of  co-opera- 
tive credit  has  had  to  be  devised,  which  possesses  the 

additional    merit  —  for    those    who    appreciate    such 

95 


96  CO-OPERATIVE  CREDIT 

things  —  of  bringing  into  considerably  higher  relief 
the  educational,  moral  and  social  side  of  co-operation. 
And,  strange  as  it  may  conceivably  appear,  among  the 
help-requiring  masses  of  economically  backward  coun- 
tries, whose  acquaintance  with  business  practices  is  of 
the  crudest,  this  more  primitive  system  is  really  more 
readily  understood  than  the  other,  and  it  appeals  more 
commandingly  to  their  conception  of  helpfulness.  So, 
for  instance  —  not  to  speak  of  the  broad  expanse  of 
rural  Germany  and  Italy,  where  co-operative  banking 
without  shares  has  worked  veritable  wonders  —  it  has 
been  in  India.  The  uncultured  rayat  readily  grasps 
the  simple  principle  of  unlimited  liability  and  willingly 
conforms  to  it.  So  probably  it  would  be  among  many 
of  the  small  white  settlers  and  among  the  teeming  negro 
population  of  the  United  States. 

Very  needlessly  has  there  been  for  a  long  time  a 
keenly  animated  controversy  carried  on  between  the 
advocates  severally  of  the  one  system  and  the  other, 
keeping  them  jealously  apart.  Happily  that  period  of 
strife  arising  from  prejudice  and  want  of  mutual  un- 
derstanding is  over,  and  the  disciples  severally  of 
Schulze-Delitzsch  and  Luzzatti  and,  on  the  other  hand, 
of  Raiffeisen,  are  now,  as  they  should  be,  on  the  best 
footing  and  working  hand  in  hand,  recognising  that 
each  of  the  two  systems  is  the  natural  and  necessary 
complement  of  the  other.  Both  systems,  so  it  may  be 
well  to  point  out,  make  for  the  same  ultimate  end,  be- 
yond the  mere  provision  of  temporary  assistance  by 
credit.  That  end  is  the  systematic  raising  of  the  posi- 
tion and  character  of  those  who  practise  such  credit. 


UNLIMITED  LIABILITY  97 

In  either  case  the  end  is  to  be  attained  in  a  distinct 
way.  Schulze's  idea  of  self-help,  although  based  upon 
the  recognition  of  the  necessity  of  joint  effort  by  gen- 
uine Co-operation,  was  marked  by  strongly  individual- 
istic features.  While  working  together  with  others, 
every  member  was  to  be  made  to  work  also  individual- 
istically  for  himself.  His  share  in  the  gains  was  to 
go  into  his  own  pocket.  On  coming  in  he  must  possess 
sufficient  capital  of  his  own  to  be  able  to  stand  by  his 
own  strength.  And  he  must  continually  add  to  such 
little  store  and  raise  up  out  of  it  a  solid  fabric  of 
wealth  by  his  own  efforts.  Whoever  was  too  poor  to 
do  this  must  be  left  out  in  the  cold;  Schulze  referred 
him  for  preparatory  strengthening  to  charitable  organi- 
sations, which  might  raise  him  up  to  the  required  level. 
So  here  was  to  be  the  possession  of  capital  growing  out 
of  the  possession  of  a  capitalist  germ.  But  the  germ 
must  be  there,  and  of  sufficient  vitality.  Eaiffeisen 
looked  at  the  problem  from  a  different  point  of  view. 
He  saw  poverty  before  him  crying  out  for  help.  There 
might,  so  he  thought  —  and  the  result  has  shown  that 
he  was  right  —  be  plenty  of  honest  men,  deserving  to 
be  trusted,  of  more  primitive  habits  in  business  than 
Schulze  postulated,  possessing  all  moral  elements  for 
credit,  yet  unable  to  comply  with  the  conditions  of  bind- 
ing themselves  to  the  taking  up  of  a  share  and  a  course 
of  action  savouring  of  capitalism.  This  must  be  so 
particularly  among  the  humble  masses  of  dwellers  in 
the  country,  among  whom  ringing  cash  is  scarce, 
though  there  is  a  steady  production  of  articles  of  value, 
and  to  whom  the  ways  of  the  countinghouse  are  un- 


98  CO-OPERATIVE  CREDIT 

known.  These  people  needed  help.  Their  condition 
was  likely  to  be  backward,  not  in  knowledge  of  business 
habits  only.  Living  in  sparsely  populated  districts 
among  a  primitive  population,  Eaiffeisen  found  their 
needs  being  brought  appealingly  under  his  notice.  He 
discerned  the  difference  in  the  circumstances  on  one 
side  and  the  other.  He  saw  that  the  lonely  country 
side  engenders  different  habits,  being  both  helpful  and 
hindering,  to  those  which  active  town  life  generated. 
The  untrained  countryman  needs  a  very  different  kind 
of  help  from  that  which  Schulze's  system  had  to  offer 
him.  And  why  should  not  his  better  endowed,  better 
educated,  more  highly  cultivated  neighbour  give  it  him 
from  a  feeling,  a  sense  of  duty,  which  the  Bible  incul- 
cates —  so  long  as  he  gives  it  in  the  right  way,  without 
undermining  the  sense  of  self-reliance  of  him  who  is  to 
benefit  by  it?  One  of  Raiffeisen's  chiefest  merits,  if 
not  the  chiefest,  in  my  opinion  is  this,  that  he  has,  with 
complete  simplicity,  but  yet  with  creditable  ingenuity, 
devised  a  means  by  which  the  better-to-do  may  help  — 
financially  help  —  the  poorer  without  demoralising 
him,  nay,  while  actually  strengthening  his  fibre  and 
raising  him  to  a  higher  status,  by  means  of  a  quickened 
sense  of  responsibility  and  recognition  of  duty. 

Eaiffeisen's  system,  which  is  to  form  the  subject  of 
the  present  chapter,  has  by  its  admirable  results  — 
specifically  in  country  districts  —  endeared  itself  gen- 
erally to  all  who  have  come  to  understand  it  and  in 
whom  humane  instincts  are  vivid.  Its  popularity  as 
a  rural  institution  has  in  some  quarters  attached  to  it 
the  not  altogether  merited  reputation  of  being  the  only 


UNLIMITED  LIABILITY  99 

system  to  be  of  service  to  agriculture.  That  is  a  mis- 
take. There  are  whole  sections  of  agi-iculture  in  which 
it  would  be  out  of  place.  There  are  not  sufficient 
statistics  to  admit  of  testing  the  point,  conclusively; 
but  it  is  quite  possible  that  in  respect  of  volume  of 
money  given  the  Schulze-Delitzsch  and  Luzzatti  sys- 
tems have  done  more  for  agriculture.  They  have 
raised  larger  sums.  So  far  as  Italy  comes  into  account 
that  is  certainly  so.  However  the  amount  of  money 
produced  is  after  all  not  the  only  criterium  by  which  a 
system  deserves  to  be  judged.  Eaiffeisen's  little  banks, 
although  highly  beneficial  to  agriculture,  never  set  up 
the  claim  of  being  specifically  "  agTicultural  "  banks. 
That  is  an  entire  innovation  upon  his  scheme,  which 
adapters,  anxious  to  achieve  success  by  enlisting  egotis- 
tical class  interests  —  which  has  made  them  political 
—  have  grafted  upon  what  in  its  original  form  was 
simply  philanthropic,  but  at  the  same  time  also  soundly 
businesslike.  Eaiifeisen's  owti  societies  style  them- 
selves unpretentiously  "  rural  loanbanks."  They  are 
designed  for  rural  populations  —  but  for  populations  of 
this  sort  in  their  full  comprehensiveness,  regardless  of 
callings.  Amid  such  populations  it  was  Raiffeisen's 
aim  to  accomplish  what  j\L  Luzzatti  has  termed  "  the 
capitalisation  of  honesty."  There  was  no  demand 
made  for  capital.  But  there  must  be  honesty  —  such 
as  neighbours  could  vouch  for.  Just  as  the  distributive 
co-operators  —  beginning  with  the  poor  weavers  of 
Toad  Lane,  who  possessed  nothing  —  systematically 
build  up  capital  out  of  custom,  so  he  would  turn  the 
rural  have-naught  who  was  upright  in  his  dealings, 


100  CO-OPERATIVE  CREDIT 

slowly  but  surely  into  a  capitalist,  by  means  of  the  use 
that  he  was  to  be  enabled  to  make  of  the  money  which 
Eaiffeisen  would  help  him  to  borrow^  for  the  business 
which  in  any  case  he  would  have  to  transact.  The 
Eaiffeisen  system  is  distinctly  a  scheme  for  small  men 
in  country  districts,  and  its  main  attraction  and  most 
conspicuous  merits  are  to  be  found  in  the  educational, 
moral,  social,  as  well  as  economic  good  which  it  ac- 
complishes among  those  whom  it  takes  in  hand.  The 
small  man  —  and  the  better-to-do,  who  is  anxious  to 
help  him  without  demoralising  him  —  find  their  proper 
places  in  such  society.  The  better-to-do  farmer,  who 
can  readily  take  up  shares  and  who  is  thinking  only 
of  providing  himself  with  more  working  capital,  will 
do  better  to  go  to  the  other  system. 

There  is  no  need  to  tell  over  again  the  story  how 
Eaiffeisen,  a  plain  man  of  the  people,  educated  in  a 
"  people's  "  school,  serving  as  a  non-commissioned  offi- 
cer in  the  Prussian  artillery  (though  actually  about  to 
qualify  for  a  commission),  owing  to  a  defect  in  his 
eyesight  was  diverted  from  his  military  career  and  be- 
came, advancing  step  by  step,  a  public  benefactor  to 
people  in  all  the  world.  Schulze,  as  "  patrimonial 
judge,"  learnt  through  his  judicial  practice  of  the  needs 
of  the  humble  trading  class  and  was  so  led  to  devise  a 
scheme  of  credit  which  would  benefit  primarily  these 
people  and  eventually  others.  Eaiffeisen,  appointed  a 
rural  "  maire  " —  in  the  French  sense  of  the  word ;  for 
his  country  Ehineland  was  still  under  French  law  and 
French  municipal  organisation  —  likewise  through  his 
calling  and  office  learnt  of  the  far  more  grinding  dis- 


UNLIMITED  LIABILITY  101 

tress  endured  by  the  humble  population  of  the  rural 
districts,  whose  everything,  such  as  it  was,  was  for  the 
most  part  mortgaged  to  "  the  Jews "  and  who  had 
become  very  peons  to  their  bloodsucking  masters.  He 
likewise  set  his  heart  upon  bringing  these  people  help 
—  help,  not  only  in  money  —  for  money  would  at  best 
yield  them  only  temporary  relief  —  but  also  in  the 
more  valuable  and  enduring  shape  of  culture  and  form- 
ation of  character  and  of  a  capability  of  acting  to- 
gether generally.  He  began  in  the  approved  way 
with  a  philanthropic  organisation.  He  found  that  that 
would  not  go  nearly  far  enough.  It  might  slightly  re- 
duce economic  need;  but  it  did  not  form  character;  it 
cut  off  a  poisonous  shoot,  but  left  the  venom-soaked 
stock  to  produce  all  the  more  lustily.  He  tried  char- 
ity —  the  dispensing  of  gift  money  and  "  remedial 
loans."  That,  too,  proved  a  failure.  So  he  found  him- 
self driven  to  Co-operation,  which  enlists  the  efforts  of 
beneficiaries  themselves  and  so  produces  both  a  better 
and  a  more  enduring  result.  He  began  with  a  co-oper- 
ative bakery  —  because  bread  at  a  reasonable  price  was 
most  urgently  needed.  That  brought  instant  relief, 
but  only  at  one  point.  He  then  attacked  usury  in  one 
of  its  pet  strongholds,  the  cattle  trade,  which  bristled 
with  vile  abuses.  Once  more  he  scored  —  moderately. 
These  experiments  taught  him  that  he  must  take  wider 
ground,  that  he  must  teach  the  people  whom  he  desired 
to  help  to  co-operate  for  common  good  in  all  depart- 
ments of  economic  life.  And  the  centre  of  such  life 
he  of  course  naturally  discovered  to  be  the  disposal  of 
money.     "  It  is  money  which  makes  the  mare  to  go." 


102  CO-OPERATIVE  CREDIT 

And  that  is  borne  out  by  the  teaching  of  observation 
elsewhere.  The  Spanish  positos,  the  Italian  monti 
frumentari,  which  began  as  gTain  preserving  and  dis- 
tributing depositories,  such  as  the  patriarch  Joseph 
might  have  established,  have  to  a  great  extent  been  con- 
verted into  money  foundations,  and  are  being  so  con- 
verted more  and  more.  And  in  India  the  co-operative 
bank,  dealing  in  money,  crowds  out  the  humanely  de- 
signed "  dharma  gola  "  or  granary.  Money  has  become 
the  soul  of  business.  Eaiffeisen's  societies  accordingly 
are  not  mere  credit  societies.  They  are  co-operative 
societies  in  a  multiform  aspect.  But  the  pillar  of  the 
whole  necessarily  is  credit. 

What  has  just  been  said  about  Eaiffeisen  and  his  aim 
will  give  a  clue  to  the  main  features  of  his  system.  His 
banks  are  distinctively  meant  for  the  comparatively 
humble  —  smallish  farmers,  do^vn  to  the  veritable 
have-nots,  it  may  be  the  beggar  on  the  dunghill,  if  he  is 
only  honest.  That  being  so,  there  was  no  room  for 
asking  for  anything  from  the  incoming  member  except 
character,  to  be  vouched  for  by  his  neighbours,  who 
would  join  with  him  in  the  common  credit  venture, 
staking  their  own  liability  for  themselves  and  him. 
Eaiffeisen  would  have  neither  shares  nor  entrance  fees 
—  absolutely  no  tax  in  money.  That  meant  of  course 
that  —  according  to  Leon  Say's  well  known  dictum  — 
there  must  be  unlimited  liability,  and  also,  that  what- 
ever was  foregone  in  respect  of  money  must  be  all  the 
more  carefully  made  up  for  in  discrimination  regard- 
ing character.  It  is  absolute  nonsense  to  pretend  that 
a  Eaiffeisen  bank  can  live  upon  limited  liability;  and 


UNLIMITED  LIABILITY  103 

no  less  a  mistake  is  it  to  press  people  to  come  in,  in  or- 
der that  there  may  be  many.  Lenders  and  depositors 
want  to  have  the  full  phalanx  of  members  to  answer 
them  for  their  money  with  all  that  they  are  worth; 
and  those  who  so  pledge  themselves  want  to  be  sure 
that  those  with  whom  they  join  together  are  to  be 
trusted. 

It  is  sometimes  contended  that  Raiffeisen  banking 
depends  upon  the  possession  of  land  as  a  backbone  to 
members'  liability  and  that  without  such  possession 
Eaiffeisen  credit  is  not  possible.  That  is  a  great  mis- 
take. The  wide  extension  which  the  system  has  found 
among  mere  tenantry  in  Italy  in  itself  gives  that  heresy 
the  lie.  It  is  quite  true  that  in  Germany  among  ad- 
herents of  the  Raiffeisen  system  peasant  proprietorship 
predominates.  That  is  because  in  Germany  ownership 
is  the  rule.  But  the  liability  engaged  is  in  every 
case  personal.  It  should  not  take  the  shape  of  a  mort- 
gage on  land,  save  in  exceptional  cases.  It  is  the  lia- 
bility which  pledges  all  that  the  member  has,  no  matter 
whether  as  owner  or  as  tenant  —  which  compels  the 
member  to  give  the  one  substitute  for  money  that  he  can 
give,  and  which  constitutes  a  very  much  better  security 
than  mortgaged  land,  to  wit,  the  straining  of  every 
nerve,  by  caution,  by  discrimination,  by  vigilance,  by 
warning,  to  preserve  his  society  and  himself  from  loss. 
That  is  the  corner  stone  upon  which  the  fabric  rests. 
There  must  be  unlimited  liability. 

Now  let  us  see  how  that  works.  ISTo  new  man  can 
come  into  the  bank  except  by  the  vote  of  the  members 
already  in.     Make  them  responsible  only  for  a  fixed 


104.  CO-OPERATIVE  CREDIT 

sum  —  even  if  it  be  fairly  large  —  and  they  are  not 
likely  to  be  overcritical.  "  We  stand  to  lose  thus  much, 
not  more;  after  all,  A.  is  a  man  whom  one  would  not 
like  to  offend;  so  we  will  trust  him."  Make  the  lia- 
bility unlimited  —  which  means,  that  every  member  in 
the  bank  will  become  liable  in  respect  of  every  case  of 
default  made  by  any  other  member  —  and  they  scruti- 
nise their  man  keenly,  in  order  not  to  be  brought  into 
loss. 

It  may  be  well  to  point  out  what  a  remarkably  stim- 
ulating effect  that  has  had  in  Eaiffeisen  banks,  not  only 
under  a  financial,  but  no  less  so  under  a  morally  and 
socially  educating  aspect.  Membership  has  not  gone 
long  a-begging,  once  it  was  discovered  that  by  it  money 
was  to  be  got.  Jones  saw  how  well  Brown  was  doing 
with  bank  money  and  he  did  not  want  to  be  left  out  in 
the  cold.  However,  Brown's  comrades  judged  Jones' 
claim  to  become  a  member  to  be  open  to  question. 
Maybe  he  was  a  spendthrift,  maybe  he  was  an  idler,  or 
a  drunkard,  or  suspected  of  being  something  worse. 
Being  potentially  committed  to  liability  for  him,  they 
did  not  stand  on  etiquette :  "  Ko,  my  friend,  we  will 
not  have  you  at  present."  However,  there  was  good  to 
be  got  out  of  becoming  a  member.  Jones  was  not  asked 
to  "  serve  God  for  nought."  So  he  took  to  serving  Him 
for  what  he  needed  and  was  anxious  to  get.  He  aban- 
doned his  bad  habits,  became  a  reformed  character  — 
and  was  elected.  Being  liable  to  expulsion  in  case  of 
relapse,  he  remains  on  his  good  behaviour.  There  have 
been  numbers  of  such  cases.  Even  down  to  the  very 
humble  requirement  of  being  able  to  finger  a  pen,  men 


UNLIMITED  LIABILITY  105 

have  been  driven  by  the  Raiffeisen  banks  to  learn  writ- 
ing in  their  old  age.  Illiteracy  is  greatly  rife  in  Italy. 
There  are  districts  with,  about  80  per  cent,  of  illiterates. 
But  the  cassa  rurale  required  that  there  should  be  no 
member  who  could  not  at  the  very  least  sign  his  own 
name.  And  so  old  men  have  taken  to  learning  to  write 
from  their  grandchildren.  You  may  still  tell  what 
novices  they  are  in  writing  by  the  sprawling,  straggling 
characters  of  their  signatures.  It  is  a  matter  of  com- 
mon observation  that  wherever  there  are  Eaiffeisen 
banks,  not  only  is  there  less  pauperism  and  poverty 
generally  —  there  is  a  saying  current  in  Germany  (in 
the  shape  of  a  couplet)  that  whoever  sets  up  Eaiffeisen 
banks  thereby  pulls  do^^oi  poorhouses ;  ^  but  there  is  also 
a  higher  level  of  morality.  Even  the  Serbian  peasant 
forsakes  his  slivovitz  and  becomes  sober.  In  Germany 
crime  and  larceny  have  decreased  under  their  influ- 
ence, as  pastors  and  local  judges  have  testified.  Pota- 
toes have  become  safe  in  their  graves  and  in  the  fields, 
and  manure  has  become  so  in  its  heaps.  Formerly 
both  used  to  be  freely  stolen.  And  education  has 
progressed. 

But  let  us  advance  one  step  further.  Brown  has 
rejected  Jones  as  a  member.  But  he  has  still  his  own 
officers  to  elect.  Once  more  unlimited  liability  makes 
him  severely  critical.  "  The  man  in  that  position  may 
cause  me  loss ;  let  me  make  sure  that  he  is  a  good  one." 
Unlimited  liability  banishes  respect  of  persons;  it 
recognises  only  merit. 

1 "  Wer  Raiffeisen-vereine  baut 

Reisst  Armenhauser  nieder." 


106  CO-OPERATIVE  CREDIT 

And,  the  Committeemen  and  Councilmen  being 
elected,  our  unlimited  liability  man  is  not  disposed  to 
leave  matters  further  alone.  Publicity  is  the  rule  in 
the  bank.  Every  member  has  a  right  to  know  who  has 
borrowed,  how  much  and  what  for.  So  Brown  lays 
himself  out  for  knowing,  and  he  follows  his  knowledge 
up.     He  does  not  want  to  be  made  to  pay. 

So  again  it  is  when  the  balance  sheet  comes  to  be 
laid  before  the  General  Meeting  and  explained  by  the 
Council.  Things  are  inquired  into  minutely  that 
would  under  other  circumstances  be  allowed  to  pass 
without  comment.  Unlimited  liability  sharpens  intel- 
ligence as  nothing  else  will  and  breaks  down  barriers 
of  caste  and  class  and  office. 

In  this  way  unlimited  liability  supplies  automatically 
that  "  elbow  grease,"  that  personal  trouble  and  inquiry 
which  in  such  an  institution  as  this  is  to  replace  capi- 
tal. "  We  make  sure  of  being  able  to  repay  —  because 
we  take  care  to  see  that  everything  is  done  to  make 
repa;)Tnent  to  ourselves  certain."  ^'  What  have  all 
these  men  among  them  got  to  produce  supposing  that 
they  are  sold  up  ? "  So  asked  of  me  the  late  Duke  of 
Devonshire  when,  twenty-three  years  ago,  I  invited  him 
to  become  President  of  the  Agricultural  Banks  Associa- 
tion. Well,  for  the  matter  of  that,  they  have  probably 
got  quite  enough  to  answer  for  liabilities.  In  France 
M.  Louis  Durand,  reckoning  up  the  possessions  of  mem- 
bers in  his  rural  banks,  found  that  they  possessed  a 
good  deal  more  than  they  owed.  But  selling  up  is  a 
point  that  they  will  never  allow  the  matter  to  ripen  to. 
Selling  up  would  mean  dire  distress  to  themselves.     So 


UNLIMITED  LIABILITY  107 

they  take  care  to  prevent  it.  On  the  other  hand,  the 
man  for  whom  they  make  themselves  answerable  would 
find  himself  in  a  very  undesirable  position  were  he  to 
betray  his  classmates,  who  exercise  judgment  in  their 
own  way  and  have  good,  retentive  memories.  So  he  is 
careful  not  to  play  them  false.  In  truth  it  is  almost 
marvellous  what  a  compelling  force  such  class  feeling 
exercises  upon  borrowers.  I  have  told  a  story  of  a 
working  man  in  a  rather  remote  suburb  of  London,  who 
never  thought  of  repaying  the  vicar,  from  whom  he 
had  borrowed  £2.  "  Oh,  you're  the  vicar ;  you  don't 
want  it."  But  that  same  man  repaid  his  local  "  self- 
help  society  "  every  penny  to  the  day.  In  Italy,  where 
poverty  of  the  crassest  sort  is  rife,  poor  folk  emigrat- 
ing have  returned  their  borrowed  money  scrupulously 
even  from  their  distant  transatlantic  new  homes,  simply 
from  a  feeling  of  honesty  to  their  "  pals." 

The  upshot  of  all  this  is  that  if  you  want  to  have 
a  bank  on  Eaiffeisen  lines  you  may  do  without  shares 
and  without  entrance  fees  —  although  if  your  mem- 
bers can  afford  shares,  such  are  a  useful  support  to  the 
bank,  and  entrance  fees,  as  has  been  already  shown, 
have  merits  of  their  own  —  but  you  cannot  do  without 
unlimited  liability.  Attempts  have  been  made  to  do 
without  it  —  mainly  because  there  were  kindly  dis- 
posed persons  who  were  willing  to  support  the  bank, 
without  intending  to  borrow  from  it,  but  who  would  not 
"  go  the  whole  hog "  in  making  themselves  liable. 
From  such  well-intentioned  men,  provided  that  they  are 
in  earnest,  unlimited  liability  is  required  at  least  as 
much  as  from  the  humbler  prospective  beneficiaries. 


108  CO-OPERATIVE  CREDIT 

just  because  you  do  not  want  their  money.  Were  they 
to  pay,  that  would  demoralise  the  whole  institution. 
It  was  Eaiffeisen's  particular  merit  that  he  devised  a 
means  by  which  wealthy  men  may  help  the  poor  with- 
out demoralising  them.  You  want  their  title  to  credit, 
but  you  also  want  their  counsel,  their  guidance  and 
personal  participation  in  the  work,  because  they  have 
the  command  of  business  experience,  knowledge  of  the 
world  and  common  sense  —  qualities  most  valuable  to 
you  —  in  a  higher  degree  than  their  humbler  neigh- 
bours. This  is  in  truth  what  you  want  of  them  most. 
But  they  could  not  be  relied  upon  for  giving  it  to 
the  extent  that  you  want  unless  they  are  compelled  to 
this  by  unlimited  liability.  A  limited  financial  stake 
they  are  prepared  to  sacrifice.  If  they  desire  no  more 
than  to  help  with  money,  let  them  deposit  such,  and 
they  will  be  free  from  all  care  and  run  only  a  very 
limited  risk.  The  attempt  to  combine  Eaiffeisen 
credit  with  limited  liability  —  which  Eaiffeisen  him- 
self deprecated  and  pronounced  practically  impossible, 
as  do  his  followers  to  the  present  day  —  has  in  all  cases 
ended  in  patronage,  which  is  the  exact  opposite  of  co- 
operation. The  late  Count  Alexander  Karolyi  wanted 
it  in  Hungary.  He  created  a  central  bank  —  and  his 
local  banks  have  become  little  more  than  distributing 
stations.  Some  large  landowners  in  Prussian  Saxony 
and  in  Pomerania  wanted  it  —  and  they  have  got  it. 
But  the  late  Dr.  Haas  himself,  the  president  of  their 
Union,  judged  it  misplaced,  as  he  has  himself  written 
to  me,  and  merely  tolerated  it  for  the  sake  of  keeping 
the   societies  concerned  in  his  Union.     The  practice 


UNLIMITED  LIABILITY  109 

could  not  possibly  be  reproduced  ou  the  same  lines  in 
any  other  country.  For  Prussia  has  its  income  tax 
down  to  $225  per  annum.  Every  man  is  appraised 
for  tax  down  to  that  point  —  and  below  it.  For  there 
is  an  imaginary  scale  of  estimated  incomes  downwards 
from  that  point,  in  order  that  not  even  the  smallest 
fish  may  slip  through  the  taxgatherer's  net.  And  on 
such  appraisement  is  the  liability  assessed.  Where 
else  is  there  an  appraisement  of  such  small  men  that 
could  be  relied  upon  ?  You  cannot  have  this  kind  of 
co-operative  bank  without  unlimited  liability,  because 
it  would  lack  the  requisite  security  and  it  would  lack, 
which  is  even  more  important,  the  requisite  stimulus 
to  watching  and  checking  and  taking  trouble. 

And  it  is  unlimited  liability  which  determines  the 
leading  features  of  this  humble  institution  —  which 
people  must  not  picture  to  themselves  as  of  importance 
by  reason  of  its  magnitude.  "  It  is  its  humbleness 
which  constitutes  its  beauty  "  —  dont  lliumilite  est  la 
heaute  —  says  M.  Eugene  Eostand.  Its  importance 
lies  in  its  services,  and  its  results  become  great  by  the 
multitude  of  organisations  with  which  it  covers  the  face 
of  a  country.  It  is  "  detail  business,"  says  the  German 
Imperial  Chancellor,  Ilerr  von  Bethmann-IIollweg ; 
and  that  in  his  opinion  makes  it  so  valuable. 

The  bank  being  based  upon  unlimited  liability  and 
mutual  checking,  it  follows  as  a  matter  of  course  that, 
in  the  first  place,  members  must  in  all  cases  be  limited 
to  membership  in  one  such  bank  only,  or  their  liability 
for  all  that  they  possess  would  become  illusory  or  at 
any  rate  of  only  doubtful  value;  and,  in  the  second, 


110  CO-OPERATIVE  CREDIT 

that  its  working  district  must  be  small,  in  order  that 
members  maj  be  bound  together  by  the  link  of  prox- 
imity, which  alone  ensures  a  possibility  of  their  know- 
ing and  watching  one  another.  In  this  respect  it  is 
best  not  to  cherish  any  illusions.  Such  a  bank  as  this 
cannot  work  in  a  sparse  population  or  where  people  are 
strangers  to  one  another.  I  have  found  a  telling  in- 
stance of  this  in  eastern  Prussia.  The  institution  is 
much  favoured  by  the  Prussian  as  by  other  Govern- 
ments, on  the  ground  of  its  excellent  results.  How- 
ever in  the  newly  formed  settlements  in  the  Polish 
provinces  of  Prussia  —  which  in  themselves  are  highly 
interesting,  and  would  be  even  more  so  if  they  were  not 
formed  with  a  political  object,  namely,  to  stamp  out 
Polonism  and  replace  it  by  Germanism  —  the  Presi- 
dent of  the  Settling  Commission  some  twenty  years 
ago  —  he  is  dead  now  —  complained  to  me  that  with 
all  good  will  in  the  world  he  could  not  push  them  as  he 
would  wish  to  do,  because  the  settlers,  newly  gathered 
together  from  all  parts  of  Germany,  and  from  Switzer- 
land to  boot,  were  still  without  sufficient  touch  and 
power  of  mutual  control.  And  amid  a  sparse  popula- 
tion the  whole  thing  becomes  impossible  for  lack  of  the 
same  essential  postulates. 

There  is  another  reason  which  under  this  aspect 
makes  large  districts  undesirable.  Raiffeisenism  was, 
as  already  observed,  not  simply  to  provide  credit  attain- 
able by  the  poor.  It  was  also  to  create  a  kind  of 
brotherhood  among  members,  such  as  would  link  to- 
gether the  various  elements  of  the  whole  parish,  make 
people  buy  in  common,  sell  in  common  and  pursue  in 


UNLIMITED  LIABILITY  111 

common  the  same  economic  and  ideal  aims.  For  that 
reason,  once  more,  the  working  district  must  be  small. 
However,  there  is  more  even  than  mere  limitation  of 
district  and  non-limitation  of  liability  that  is  wanted. 
Members  joining  have  their  vigilance  and  power  of  dis- 
crimination sharpened  by  unlimited  liability,  but  they 
must  be  given  a  fair  field  for  the  exercise  of  these 
functions.  In  other  words,  the  organisation  of  the  so- 
ciety must  be  thoroughly  democratic.  Wealthy  men. 
and  men  experienced  in  affairs  are  desired  in  it,  be- 
cause they  may  be  exceedingly  useful.  Their  presence 
is  not  indeed  indispensable.  There  are  banks  without 
them.  But  it  is  by  far  preferable  that  there  should  be 
such.  Eaiffeisen  distinctly  urged  this  and  recom- 
mended for  the  safeguarding  of  such  well-wishers'  in- 
terests, that  they  should  as  a  standing  rule  be  allowed 
adequate  representation  on  the  governing  bodies.  It 
is  to  the  interest  of  the  bank  itself  that  they  should  have 
such.  And  with  it,  so  it  deserves  to  be  pointed  out, 
they  are  perfectly  safe.  For  their  assent  will  be 
needed  for  any  emplojonent  of  money.  It  is  just  con- 
ceivable that  they  might  raise  objections  but  should 
nevertheless  be  overruled.  That  is  not  indeed  very 
likely.  But  suppose  that  it  happens.  Our  well-to-do 
men  may  in  that  case  simply  resign  their  membership. 
Under  newly  revised  rules  in  Germany  —  where  the 
institution  has  been  long  at  work,  where  people  are 
thoroughly  well  broken  in  to  its  ways,  and  where,  in 
the  last  place,  arrangements  for  control  have  been  car- 
ried to  a  high  state  of  perfection  —  rather  considerable 
notice  is  now  required  for  withdrawing.     But  on  new 


112  CO-OPERATIVE  CREDIT 

ground  nobody  would  think  of  tying  members  down  to 
such  condition.  In  early  stages  a  member  must  be 
left  free  to  go  out  whenever  he  pleases,  and  from  that 
moment  his  liability  for  transactions  not  yet  completed 
ipso  facto  ceases.  The  bank  would  then  by  an  exer- 
cise of  unreasonable  self-will  lose  a  member  or  mem- 
bers whom  in  its  own  interest  we  may  be  sure  that  it 
will  be  anxious  to  retain,  if  possible.  Therefore  over- 
ruling is  not  likely  to  be  lightly  or  capriciously  re- 
sorted to. 

However,  apart  from  such  consideration,  which  is  in 
the  interest  of  the  bank  itself,  our  wealthy  man  can 
have  no  privileges  allowed  to  him.  As  already  ob- 
served, if  he  does  not  desire  personally  to  put  his  hand 
to  the  plough,  let  him  betoken  his  good  will  by  deposit- 
ing. Once  in,  he  must  in  fairness  take  his  place,  as  an 
equal,  by  the  side  of  his  comrades.  Every  man  stakes 
his  own  liability,  which  to  himself  is  worth  quite  as 
much  as  his  neighbour's  liability  is  to  him,  whatever 
may  be  the  difference  in  amount  of  the  two.  Accord- 
ingly everybody  must  be  allowed  an  equal  say. 

Organisation  is  in  these  little  banks  in  its  main 
features  framed  on  the  same  lines  as  in  the  banks  based 
on  shares.  Things  are  of  course  in  general  smaller 
and  resemble  more  dealings  among  members  of  the 
same  group  of  families.  It  is  a  common  practice  to 
elect  a  chairman  at  the  General  Meeting,  who  is  of 
course  not  removable,  as  other  members  of  the  Man- 
aging Committee  are  in  extreme  cases,  by  the  Coun- 
cil of  Supervision.  This  is,  however,  not  indispensable. 
It  is  liable  to  be  abused  for  the  establishment  of  one 


UNLIMITED  LIABILITY  113 

man  rule,  which  danger  should  be  guarded  against  by 
proper  selection  and  by  careful  checking  by  the  Coun- 
cil of  Supervision.  But  in  practice  it  works  well.  It 
was,  in  truth,  the  original  form  of  organisation 
adopted.  The  chairman  under  such  conditions  plays  a 
more  prominent  part  than  he  otherwise  would  do. 
Eaiffeisen  laid  it  do^vn  that  once  a  good  chairman  had 
been  secured  and  a  man  had  been  found  to  undertake 
the  secretarial  duties,  a  new  bank  might  forthwith  be- 
gin business.  As  to  the  most  convenient  size  of  the 
Committee,  Eeiffeisen  as  a  standing  rule  preferred  the 
number  of  five,  and  nine  for  the  Council  of  Supervi- 
sion. However,  there  is  no  reason  why  in  a  small 
bank  a  Committee  of  three  should  not  suffice.  It  is 
not  always  easy  to  man  these  governing  bodies  to  the 
full  number  with  efficient  and  well  qualified  men. 
And  efficiency  and  good  qualification  are  necessary  be- 
cause —  there  being  no  shares,  or  only  very  small  ones 
—  very  careful  inquiry  before  a  loan  is  granted  be- 
comes doubly  essential,  and  the  tendering  of  the  em- 
ployment of  the  loan  as  security  for  itself  becomes 
accentuated.  Something  like  the  numerical  propor- 
tion recommended  by  Eaiffeisen  should  certainly  be 
retained.  The  Council  should  in  these  banks  consist 
of  a  larger  number  of  members  than  the  Committee. 

iNon-remuneration  of  officers  is  in  these  banks  a 
standing  rule  never  set  aside.  The  reasons  already 
urged  as  making  remuneration  undesirable  become  in 
the  present  application  doubly  cogent.  The  actual 
labour  and  expenditure  of  time  are  sure  to  be  very 
much  less  exacting  than  in  share  banks.     And  it  was  a 


114  CO-OPERATIVE  CREDIT 

principle  with  Eaiffeisen  that  a  man  might  well  be 
expected  to  give  the  labour  required,  by  which  he  him- 
self will  profit,  for  the  benefit  of  his  neighbours,  with- 
out pecuniary  reward.  His  aim  was  to  keep  out  every 
consideration  of  pelf,  all  possible  pickings.  There 
must  be  no  shares,  in  order  that  there  might  be  no 
dividend,  to  set  the  interest  of  the  provider  of  money 
possibly  in  opposition  to  that  of  the  applicant  for 
money,  and  convert  the  "  borrowers'  bank "  into  a 
usurer's  trap.  There  must  be  no  remuneration,  in 
order  that  things  might  be  kept  pure  and  done 
cheaply;  and  that  there  might  be  no  inducement  for 
any  office  holder  unduly  to  favour  any  applicant  who 
might  threaten  to  use  his  vote  in  the  re-election  of  the 
Committeeman  as  a  revenge  for  refusal.  The  salaried 
office  might  be  worth  something  to  its  holder.  And 
there  must  be  no  divisible  reserve  fund,  in  order  that 
there  might  be  no  inducement  to  wind  up  the  bank  for 
the  sake  of  the  spoils  —  as  has  actually  happened  in 
co-operative  societies  with  large  surpluses,  Eaift'eisen's 
own  first  "  loan  bank,"  formed  without  such  safeguard, 
among  the  number.  In  the  event  of  the  bank  being 
wound  up,  it  is  laid  down  by  general  rule,  which  is 
regarded  as  sacred,  that  the  reserve  fund  must  remain 
intact,  to  be  employed  for  the  endowment  of  a  new 
bank  to  be  formed  some  time  or  other  on  the  same  lines 
and  in  the  same  locality,  or,  failing  that,  to  be  laid 
out  in  some  public  work  benefiting  the  district.  As 
regards  payment  of  officers,  there  is  one  man  only  who 
may  be  paid  —  but  that  should  be  at  a  moderate  rate ; 
and   indeed   the    little    bank   can    never    afford   more. 


UNLIMITED  LIABILITY  115 

That  man  is  the  secretary  or  cashier,  or  accountant  — 

in  Germany  they  call  him  rechnei or  whatever  else 

you  may  choose  to  call  him,  that  is,  the  man  who 
as  a  subordinate  officer  carries  out  the  behests  of  the 
Committee,  keeps  the  books,  pays  out  the  cash  and  re- 
ceives it  in  its  turn.  But  this  man  must  not  on  any 
account  be  a  member  of  either  Committee  or  Council, 
or  have  any  say  in  the  disposal  of  money.  Other  of- 
ficers may  be  refunded  out-of-pocket  expenses,  which 
as  a  matter  of  fact  rarely  occur.  It  is,  by  the  way, 
a  mistake  to  multiply  offices,  as  has  been  proposed  in 
England,  and  as  is  suggested  in  some  of  the  new  Acts 
passed  in  the  United  States.  The  bank  is  a  simple 
institution  and  wants  to  be  simply  organised  and  man- 
aged. 

The  functions  severally  of  Managing  Committee  and 
Council  or  Supervision  are  in  substance  the  same  as  in 
the  banks  already  spoken  of.  However,  in  either  case 
inquiry  and  control  will  have  to  be  more  searching, 
because  that  in  fact  constitutes  to  a  great  extent  the 
security  offered.  To  bind  the  borrower  all  the  more 
compellingly  to  the  employment  named  by  him  and 
approved,  it  is  laid  down  that  in  the  event  of  his  mis- 
employing the  loan  the  latter  may  be  called  in  at  short 
notice  —  in  Germany  within  four  weeks ;  in  Italy, 
where  the  loan  is  granted  each  time  for  three  months 
only,  with  a  promissory  note  for  that  term  as  record  — 
although  it  is  understood  that  there  are  to  be  renewals 
—  on  the  maturity  of  the  current  promissory  note.  I 
have  not  heard  that  this  provision  has  been  put  to 
practical  use  —  which  shows  all  the  more  clearly  how 


116  CO-OPERATIVE  CREDIT 

effective  it  has  proved  as  "  a  rod  upon  the  mantel- 
piece," a  menace  to  evildoers  and  a  safeguard  for 
proper  employment. 

For  its  supply  of  funds  the  Raiffeisen  bank  relies, 
first  and  mainly,  like  the  Schulze-Delitzsch  and  Luz- 
zatti  banks,  upon  deposits  and  other  loan  capital  — 
indeed  more  so  than  they,  because  it  has  no  shares. 
Shares  are  indeed  no  contraband  in  Raiffeisen  banks. 
But  they  are  not  necessary.  And  in  any  case  principle 
requires  that  they  should  be  small.  The  German  and 
Austrian  legislatures  have  forced  shares  upon  them,  and 
the  French  is  now  endeavouring  to  do  so,  for  reasons  of 
its  own,  by  threatening  to  withhold  State  advances  from 
non-share-issuing  banks  —  which  of  course  leaves  such 
societies  as  M.  Durand's  genuinely  Raiffeisen  banks 
free  to  pursue  their  own  path  without  State  support 
but  is  resented  as  casting  a  slur  upon  a  useful  institu- 
tion. In  Italy  a  fussy  district  judge  has  ruled  that 
there  must  be  shares,  to  comply  with  the  law.  And, 
not  to  incur  the  trouble  and  cost  of  an  appeal  to  a  higher 
tribunal,  that  particular  bank  (at  Crema)  has  issued 
shares  —  of  two  cents.  In  Germany  the  banks  have 
answered  Prince  Bismarck's  studied  compulsion  by  lim- 
iting shares  to  25  cents  —  of  which  shares  every  mem- 
ber is  permitted  to  take  up  only  one  —  and  signing 
away  all  possible  dividend  (limited  as  it  is)  for  sub- 
scription to  its  Union  paper.  In  Austria  shares  are 
commonly  of  about  50  cents,  with  the  same  proviso. 
In  the  absence  of  share  capital  the  little  bank  will  have 
to  do  all  that  it  can  to  attract  deposits  —  from  any  one 
in  the  district,  or  even  out  of  it,  be  he  a  member  or  no. 


UNLIMITED  LIABILITY  117 

That,  as  it  happens,  is  not  a  difficult  process.  For 
people  in  the  district  soon  come  to  love  the  little  bank 
which  brings  their  district  benefit,  and  the  good  effects 
of  which  they  may  themselves  observe  any  day  in  the 
district.  People  like  to  have  their  savings  adminis- 
tered by  men  of  their  own  choice  and  under  their  own 
eyes.  However  collection  has  in  any  case  to  be  pro- 
ceeded with  systematically.  It  is  very  common  to  have 
collectors  going  the  round  from  house  to  house,  with 
savings  books  or  tokens,  and  gathering  up  small  sums 
which  in  course  of  time  come  to  total  up  to  something 
substantial.  However  for  its  first  funds,  until  a  Cen- 
tral Bank  is  formed  capable  of  appraising  the  security 
created  and  lending  upon  it,  the  bank  is  likely  to  have 
to  look  to  wellwishers,  in  the  shape  of  specific  loans  or 
fixed  deposits,  to  provide  working  capital. 

Both  in  the  matter  of  collecting  funds  and  employing 
them  the  essential  difference  between  the  Schulze- 
Delitzsch  principle  and  the  Eaiffeisen,  about  which 
there  has  been  for  so  long  time  an  altogether  gratuitous 
hurly-burly  fight,  becomes  very  plainly  apparent. 
Schulze-Delitzsch  —  and  like  him  M.  Luzzatti  —  rely 
upon  quick  and  active  business,  in  which  money  passes 
freely  across  the  bank's  counter,  coming  and  going. 
The  money  which  their  banks  receive  is  for  the  most 
part  withdrawable  at  very  short  notice  or  without  any, 
and  cannot  accordingly  be  lent  out  for  very  long  terms. 
Eaiffeisen  pledges  the  collective  unlimited  liability  of 
all  his  members,  which  goes  on  and  remains  steady, 
lie  does  not  want  to  have  more  cash  on  his  hands  than 
lie  can  employ,  because  that  would  mean  loss  of  interest. 


118  CO-OPERATIVE  CREDIT 

But  he  wants  a  fund  which  he  can  at  any  time  pledge 
as  occasion  ixiaj  require  —  just  as  a  State  pledges  its 
credit  by  issuing  Treasury  Bills  or  contracting  new 
loans.  Members'  collective  liability  in  fact  answers 
the  purpose  of  a  Consolidated  Fund.  The  stock  for 
credit  is  always  there.  Members  of  the  bank  are  aware 
that  they  pledge  it  and  exercise  caution  accordingly. 
And  lenders  know  how  it  comes  to  be  pledged.  Even 
unexpected  withdrawals  of  deposits  could  not  ruin  our 
bank,  once  it  has  made  appropriate  arrangements  with 
other  banks  —  such  as  will  still  be  spoken  of.  Such 
arrangements  provide  it  with  a  credit  reserve  upon 
which  it  may  draw  when  its  o^vn  funds  give  out,  be- 
cause its  security  is  there  understood. 

This  difference  in  policy  accounts  for  a  rather 
marked  difference  also  in  the  practice  of  loaning  out 
money,  which  has  long  formed  a  stumbling  block  to  the 
strictly  businesslike  followers  of  Schulze-Delitzsch. 
Eaiffeisen  has  a  different  public  to  deal  with  than  they, 
who  borrow  in  many  cases  for  a  different  class  of  ob- 
jects. He  must  keep  the  possibility  in  view  of  having 
to  deal  with  very  poor  people,  without  capital,  such  as 
Schulze-Delitzsch  would  not  have  in  his  banks.  For 
such  the  loan  is  to  yield  economic  benefit,  create  some 
new  value.  If  it  is  to  do  this,  it  must  necessarily  be 
sufficient  in  amount  for  effecting  its  intended  object, 
and  it  must  be  lent  for  long  enough  to  have  time  to  do 
so.  If  the  man  who  wishes  to  carry  out  a  $100  im- 
provement or  outlay,  is  lent  only  $90,  or  if,  when  the 
return  can  come  only  in  two  years,  he  is  allowed  the 
use  of  the  money  only  for  eighteen  months,  the  intended 


UNLIMITED  LIABILITY  119 

benefit  to  him  becomes  altogether  illusory  —  nay,  nega- 
tive, supposing  that  he  accepts  it.  For  in  the  first  case 
the  work  will  be  carried  out  so  as  not  to  produce  the 
desired  profit  —  the  ship  will  have  been  spoilt  for  the 
sake  of  a  ha'porth  of  tar;  and  in  the  second  he  will, 
before  reaping  the  promised  fruit,  have  to  tax  some 
other  source  of  income  or  liability,  in  order  to  meet  the 
claim  of  the  bank.  Here  is  a  marked  contrast.  The 
share  bank  takes  care  that  the  money  lent  is  well  em- 
ployed ;  but  after  all  it  lends  on  the  financial  goodness 
of  the  borrower  and  his  business.  The  unlimited  lia- 
bility bank  is  careful  to  see  that  it  has  a  trustworthy 
borrower  to  deal  with,  but  it  lends  distinctly  on  the 
security  of  the  emplo^Tiient  proposed.  That  is  one  rea- 
son why,  unlike  a  well  developed  share  bank,  the  Raif- 
feisen  bank  will  have  to  be  extremely  chary  in  the  use 
of  current  accounts,  which  debar  it  from  exercising  the 
same  minute  control  over  the  emplo^Tnent  of  every 
grant  of  money.  We  have  not  very  far  to  go,  as  it 
happens,  to  observe  the  prejudicial  —  it  may  be  fatal 
—  consequences  of  a  resort  to  current  account  practised 
in  the  wrong  place.  For  those  disastrous  collapses  of 
co-operative  banks  in  the  Union  formed  by  the  late 
Dr.  Haas,  which  have  set  the  European  Continent  ring- 
ing again  with  cries  of  distress,  are  distinctly  traceable 
to  lax  practice,  one  of  the  features  of  which  was  habit- 
ual over-complacency  in  granting  credit  on  current  ac- 
count, for  the  very  insufficient  reason,  frankly  owned 
to  in  the  published  paper  of  the  Union,  that  inquiry 
in  each  particular  case,  such  as  Eaiffeisen  prescribed, 
was  found  troublesome,  and  it  was  easier  to  grant  a 


120  CO-OPERATIVE  CREDIT 

standing  cash  credit.  Easier  it  is,  no  doubt;  but  it 
also  makes  the  loss  of  money  very  much  easier.  When 
you  set  yourself  to  raise  money,  as  the  veteran  econom- 
ist M.  F.  Passy  put  it,  "  without  a  capital  of  guar- 
antee," trouble  is  a  thing  that  you  must  not  grudge, 
or  you  may  be  made  to  pay  for  it.  Unquestionably 
Kaiffeisen's  system  causes  trouble;  but  it  enables  you 
to  do  what,  not  under  any  other  system,  you  could 
accomplish. 

The  proper  course  is  in  every  instance,  before  lend- 
ing, to  inquire  —  and  'inquire  very  carefully  —  into 
the  use  to  which  the  loan  is  to  be  put.  Under  this  as- 
pect there  are  two  points  to  be  taken  into  account.  The 
first  is,  whether  sum  and  time  asked  for  are  such  as 
the  proposed  emplo^onent  will  justify.  And  the 
second,  whether  the  employment  is  a  proper  employ- 
ment for  the  particular  applicant  to  take  in  hand.  The 
bank  is  there  to  assist  its  members  in  the  pursuit  of 
their  legitimate  business,  not  to  finance  them  in  risky 
speculations.  To  a  certain  extent  it  goes  into  partner- 
ship with  the  man  who  operates  with  its  money;  so  it 
has  a  good  right  to  have  itself  advised  about  his  ven- 
ture. A  peasant  may  be  right  in  wanting  to  buy  a 
cow  or  a  pig  or  some  implement;  a  co-operative  bank 
would  be  untrue  to  its  principle  if  it  were  to  support 
him  in  laying  down  a  stock  of  corn,  or  sugar,  or  any- 
thing else  in  expectation  of  a  rise.  That  point  apart, 
the  bank  wants  to  judge  if  the  proposing  borrower  asks 
for  the  right  amount,  and  asks  it  for  the  right  length 
of  time.  If  his  proposed  purchase  is  a  cow,  he  wants 
a  good  animal,  but  not  necessarily  a  pedigree  beast,  as 


UNLIMITED  LIABILITY  121 

if  for  a  show.  In  the  Swiss  VieJileihJcassen  (Caisses 
Thurgoviniennes) ,  which  in  their  district  do  a  deal  of 
good,  the  (civil)  parish,  acting  as  a  co-operative  bank, 
with  the  unlimited  liability  of  all  the  parish  at  its 
back,  buys  the  beast,  at  the  borrower's  choice,  but  sub- 
ject to  the  approval  of  its  own  veterinary  surgeon,  and 
does  not  part  with  its  legal  ownership  of  it  till  the 
money  borrowed  is  fully  repaid.  A  bank  cannot  pro- 
ceed in  quite  the  same  manner.  Besides,  it  has  the 
man's  sureties  or  other  security  to  back  up  the  loan. 
It  will  take  care  that  the  beast  is  insured  in  an  oflSce 
approved  by  itself.  But  it  will  trust  the  sureties  to 
see  that  the  man  does  not  throw  his  —  or  rather  their  — 
money  away  upon  an  unsuitable  beast.  However  it 
will  not  allow  him  more  than  is  necessary  for  the  pur- 
chase of  a  good,  useful  beast,  nor  allow  that  for  longer 
than  the  money,  transformed  into  the  shape  of  a  cow, 
will  take  to  reproduce  itself.  And  it  will  act  in  the 
same  way  in  any  other  case  —  purchases  of  manure, 
or  seed,  or  land,  or  digging  a  well  or  draining  a  field. 
The  particular  case  may  require  six  months  or  else 
ten  years.  There  are  also  non-agricultural  purposes 
to  take  into  account  —  poor  folk,  men  and  women,  of 
good  character,  wishing  to  be  enabled  to  work  them- 
selves up,  it  may  be  through  hawking  as  a  beginning, 
to  the  possession  of  a  little  shop,  or  business,  or  of  a 
farm.  There  are  plenty  such  cases  on  record  that 
have  been  successfully  dealt  with  in  Italy.  There  is  a 
case,  which  I  have  related  elsewhere,  which  occurred  at 
Loreggia,  near  Padua,  the  birthplace  of  the  Italian 
Raiffeisen  banks,  of  a  poor,  seemingly  bankrupt  peas- 


122  CO-OPERATIVE  CREDIT 

ant,  assisted  at  first  only  with  a  loan  of  $20.  Bit  by 
bit  he  got  on,  to  become  in  the  end  a  thriving  little 
farmer,  with  beasts  in  his  stable  and  money  in  the  bank. 
However  all  these  cases  want  to  be  inquired  into.  The 
Committee  would  be  wrong  in  lending  where  there  is 
no  prospect  of  recovering.  In  India  the  question  has 
been  much  debated  whether  money  should  be  advanced 
by  co-operative  banks  for  those  famous  Hindoo  wed- 
dings, which  often  result  in  the  pledging  of  the  still 
ungotten  babe,  to  result  from  the  marriage,  to  the  money 
lender,  as  security  for  the  loan  —  which  pledge  is 
loyally  honoured  by  the  hapless  mortal  still  to  see  the 
light;  or  among  Mahomedans  for  a  sradh  or  funeral. 
Both  these  functions  are  considered  de  rigueur;  and 
there  must  be  feasting  with  them,  in  which  the  whole 
village  will  join,  and  to  which  accordingly  every  vil- 
lager will  lustily  egg  on,  to  the  money  lender's  satis- 
faction. My  advice  was  to  allow  such  loans  in  suit- 
able cases.  And  what  I  predicted  has  come  to  pass. 
Instead  of  the  villagers  urging  the  borrowers  to  borrow 
much,  as  they  had  previously  done  —  the  money  lender 
helping  —  in  order  that  every  one  might  have  his  full 
share  in  the  feasting,  the  fellow  members  in  the  bank 
now  carefully  restrain  the  founder  of  the  feast  from 
practising  extravagance.  He  borrows  the  money  re- 
quired from  the  bank.  And  they  know  that  they  might 
have  themselves  to  pay  for  his  liberality.  The  man 
now  still  borrows,  so  as  to  keep  even  with  custom.  But 
he  borrows  at  less  per  cent.,  and  less  money,  and  cur- 
tails the  feasting,  so  that  he  no  longer  has  any  need 
to  pledge  his  unborn  grandchild,  but  can  comfortably 


UNLIMITED  LIABILITY  123 

repay  the  money  in  a  few  years.  Presently  he  will 
come  to  have  the  requisite  money  ready  beforehand. 
But  we  do  not  advance  by  seven  league  bounds.  Where 
there  is  previous  indebtedness,  co-operative  banking 
comes  in  as  a  saviour  indeed.  That  was  the  original 
object  of  these  little  banks  in  Germany  and  Italy.  Mr. 
Cent-per-cent  kept  the  peasantry  in  peonage.  The  bank 
stepped  in  —  by  a  process  as  old  as  the  hills,  which  the 
ancient  Eomans  styled  versura;  and  the  margin  between 
5  per  cent,  and  50  or  100  per  cent,  made  all  the  differ- 
ence in  the  world.  In  India  these  debts  used  to  drag 
on  from  generation  to  generation.  So  accustomed  had 
men  become  to  them  that  with  a  fatalist's  patience  they 
bowed  to  the  ordeal  as  to  an  ordinance  of  Providence 
not  to  be  resisted  or  evaded.  ISTow  a  few  years'  thrift 
will  relieve  the  debtor,  who  finds  new  hope  springing 
up  in  his  breast.  However  for  all  these  things  care- 
ful discrimination  and  weighing  of  prospects  and  like- 
lihoods have  to  be  practised,  such  as  the  Committee,  un- 
der a  sense  of  its  own  responsibility,  kept  alive  by 
Council  and  General  Meeting,  cannot  grudge  or  stint. 
In  respect  of  repayment  it  is  of  the  utmost  impor- 
tance that  borrowers  should  be  held  to  the  strict  fulfil- 
ment of  their  duty,  not  merely  on  business  grounds,  so 
as  to  enable  the  bank,  which  has  to  be  chary  of  the  use 
of  its  —  borrowed  —  money,  to  keep  accounts  square, 
with  as  little  loss  of  interest  upon  cash  in  hand  as  can 
be,  but  also  to  train  members  to  business  habits,  which 
help  them  subsequently  in  all  that  they  do.  Eeally 
anything  may  be  forgiven  rather  than  remissness  in 
repayment.     The  loan  may  be  renewed  —  but  that  will 


124  CO-OPERATIVE  CREDIT 

be  by  consent  of  the  bank,  upon  cause  shown.  The 
debt  may  be  repaid  and  a  new  one  raised  —  but  that 
will  be  for  a  new  object,  which  will  stand  for  itself 
and  be  considered  by  itself.  It  is  much  better  that 
this  should  happen  than  that  loans  should  be  allowed 
to  run  on  unexamined,  as  if  they  were  current  ac- 
counts. The  bank  should  be  apprised  of  every  object 
and  its  approval  should  be  asked.  Whenever  the  debt 
runs  on  for  any  length  of  time,  it  ought  to  be  made  a 
rule  that  it  be  repaid  by  instalments  —  best  equal  in- 
stalments spread  at  regular  intervals  over  the  period 
agreed  upon. 

The  bank  will  have  to  make  sure  of  its  security  and 
in  every  case  to  obtain  the  notice  of  assent,  on  some 
proper  form,  from  the  sureties  themselves  and  see  that 
everything  is  shipshape. 

To  be  able  to  deal  with  all  these  cases  the  managing 
committee  should,  as  already  observed,  be  in  a  posi- 
tion to  give  prompt  attention  to  applications.  It  is  a 
mistake  to  overburden  its  meeting  with  a  cumbrous 
agenda.  The  district  is  small,  the  people  in  it  are 
known  to  one  another;  cases  as  a  rule  speak  for  them- 
selves. Time  may  be  of  moment.  Here  is  a  heifer 
offered  at  a  cheap  price  for  to-day.  There  is  a  tempt- 
ing opportunity  for  the  purchase  of  some  other  article 
of  equal  urgency.  The  man  ought  not  be  made  to  wait. 
Where,  as  in  some  villages  in  France,  there  are  only 
three  members  to  the  managing  committee,  these  may 
consent  on  the  spot,  the  chairman  obtaining  the  ap- 
proval of  his  colleagues  on  a  morning  or  evening  walk 
through  the  village.     With  the  fear  of  a  strict  Council 


UNLIMITED  LIABILITY  125 

before  their  eyes,  these  men  are  not  likely  to  consent 
to  a  wrong  venture.  Regular  attendance  of  some  sort, 
to  take  deposits  and  receive  applications,  are  of  course 
desirable.  And  it  will  be  for  the  benefit  of  the  bank 
and  its  members  if  the  Committee  meet  regularly. 
That  will  enable  them  to  answer  questions  such  as 
every  member  of  the  bank  has  a  right  to  put.  For,  as 
observed,  there  is  nothing  to  be  kept  secret  about  the 
bank's  doings  except  the  deposits.  The  w^eekly  or  fort- 
nightly balance  sheet  should  be  hung  up  in  the  office  for 
any  member  to  see.  However,  provided  that  the  Com- 
mittee make  arrangements  for  dealing  promptly  with 
any  cases  arising,  they  need  not  tie  themselves  down 
slavishly  to  any  fixed  days. 

The  office  of  the  Council  is  to  overhaul  all  that  the 
Committee  has  done,  as  well  as- to  audit  its  accounts 
—  w^hich  last  named  function  may  in  a  little  bank  like 
that  here  contemplated  very  well  be  executed  by  per- 
sons w^ho  are  not  skilled  accountants.  The  overhaul- 
ing as  well  as  the  auditing  is  done  in  the  interest  and 
on  behalf  of  the  members  generally,  as  a  kind  of  pre- 
cognition. ]\Iembers  cannot  at  their  general  meeting 
go  into  details.  The  big  blocks  which  they  are  set  to 
work  upon  require  to  be  broken  up  into  pieces  of 
manageable  size.  It  is  a  mistake  to  make  light  of 
this  function,  as  if  it  were  mere  surplusage.  Many  a 
bank,  so  it  is  true,  may  go  on  very  well  without  a 
Council  and  never  come  to  grief.  However,  on  the 
other  hand,  wherever  there  has  been  a  breakdown, 
wherever  there  has  been  money  misemployed  or  em- 
bezzled, it  has  invariably  been  because  there  has  been 


126  CO-OPERATIVE  CREDIT 

no  Council  or  —  which  comes  to  the  same  thing  —  be- 
cause the  Council  has  not  done  its  duty,  has  taken  things 
for  granted.  Checking  is  the  soul  of  co-operative  credit 
banking.  You  cannot  do  without  it.  And  it  must  be- 
gin on  the  lowest  stage.  The  Council  knows  its  own 
ground.  It  knows  the  people  in  the  bank;  it  knows 
their  circumstances;  it  can  judge  whether  the  Com- 
mittee has  trusted  any  of  them  too  much.  And  without 
being  offensive,  it  can  hold  the  Committee  to  strictness 
in  the  exercise  of  its  functions. 

Both  Committee  and  Council  at  the  end  of  the  year 
report  to  the  General  Meeting,  whose  authority  is  of 
course  supreme  in  the  bank  and  whose  consideration 
of  questions  affecting  the  bank  ought  to  be  encouraged. 
The  two  reports  may  deal  with  practically  the  same 
things,  but  they  will  -  deal  with  them  under  different 
aspects.  The  one  tells  the  facts.  The  other  comments 
upon  and  explains  them. 

There  are  certain  questions  specially  reserved  for  the 
judgment  of  members  generally.  The  point  of  divi- 
dend does  not  here  arise,  nor  yet  the  point  of  carrying 
surplus  to  reserve.  For  all  that  is  settled  in  the  gen- 
eral constitution  of  the  bank.  Where  there  are  shares, 
an  infinitesimal  dividend  may  be  allowed,  limited  to  a 
maximum  figure  —  which  dividend  ought  to  be  ear- 
marked in  advance  for  some  particular  and  non-egotis- 
tical object.  Otherwise  all  surplus  goes  to  reserve  as  a 
matter  of  course  —  or  it  may  be,  in  course  of  time,  to 
several  distinct  reserve  funds.  But  there  is  one  re- 
serve which  always  will  be  of  chief  importance.  The 
name  originally  given  to  that  reserve  was  "  Endow- 


UNLIMITED  LIABILITY  127 

ment  Fund  " ;  and  that  name  correctly  expresses  its  ob- 
ject. For  the  moment  it  acts  as  an  ordinary  reserve 
fund.  That  is  to  say  that  for  any  deficiencies  arising 
it  may  be  drawn  upon  as  a  matter  of  course.  How- 
ever the  German  law  very  properly  provides  that  it 
must  not  be  drawn  upon  concurrently  with  dividend 
being  paid.  All  surplus  on  the  annual  account  must 
be  absorbed  first.  As  time  goes  on,  however,  the  re- 
serve fund  is,  so  far  as  it  will  go,  to  serve  as  an  "  en- 
dowment "  for  the  bank,  become  its  capital  —  "  capital 
of  guarantee  "  at  first,  to  attract  other  money ;  after- 
wards, when  it  becomes  large  enough  also  "  working 
capital "  —  so  that  in  that  case  the  ideal  of  some  men 
(M.  Luzzatti  among  the  number)  would  be  realised,  of 
a  fund  being  in  existence  subject  to  collective  owner- 
ship only  and  therefore  permanent.  On  this  ground 
it  will,  beyond  a  certain  limit,  not  be  necessary  to  safe- 
guard the  reserve  too  rigidly  against  employment  as 
working  capital.  There  must  of  course  be  a  reserve 
fund  which  is  not  so  employed,  but  kept  intact  in  a  read- 
ily realisable  shape,  so  as  really  to  serve  as  a  reserve. 
However  these  funds  have,  under  favourable  circum- 
stances, a  way  of  growing  which  sometimes  makes  them 
very  substantial  for  their  requirements,  and  really  too 
big  for  ordinary  reserve  purposes.  That  is  especially 
so  in  Germany,  where,  freehold  land  being  fairly  dis- 
tributed and  readily  saleable,  dealings  in  real  property 
will  frequently  take  place  among  small  folk,  most  gen- 
erally in  this  sense,  that  a  man  acquiring  land  makes 
himself  liable  for  payment  of  the  purchase  price  by- 
instalments  for  which  he  gives  staged  off  bonds,  which 


128  CO-OPERATIVE  CREDIT 

bonds  the  vendor  used  to  dispose  of  to  "  Jews,"  who 
often  proved  exceedingly  exacting  Shjlocks,  foreclos- 
ing mercilessly  upon  an  unpaid  instalment.  jS^ow  the 
co-operative  bank  takes  up  the  instalment  bonds  and 
the  purchaser  is  safe,  even  if  he  were  not  to  keep  up  all 
the  paying  terms  to  the  very  day.  There  is  another 
kind  of  real  property  business  sometimes  engaged  in, 
which  occasionally  brings  in  much  money  to  the  little 
bank.  A  property  in  the  market  is  surveyed  and  pro- 
visionally pegged  out  in  lots.  These  lots  are  put  up 
for  sale  at  a  mock  auction,  which  binds  the  bidder  but 
does  not  bind  the  bank.  Supposing  that  the  bids  come 
up  to  the  offered  selling  price  or  more,  the  bank  pur- 
chases the  property  and  resells  it  according  to  the  bids 
made.  That  has,  at  times,  yielded  very  substantial 
profits.  Where  such  dealings  with  real  property  are 
not  feasible,  the  reserve  fund  will  of  course  accumulate 
more  slowly;  but  under  good  management,  with  no 
drawing  upon  it  for  deficiencies,  it  should  still  gather 
volume  steadily.       Many  crumbs  make  a  loaf. 

Such  operations  as  the  mock  sale  just  referred  to 
had,  at  any  rate  in  the  earliest  stages  of  the  life  of  a 
bank,  much  the  best  be  left  to  the  decision  of  the  Gen- 
eral Meeting.  The  General  Meeting  will  furthermore 
have  to  determine  from  year  to  year  for  what  amount 
of  lending  it  gives  the  governing  bodies  authority.  To 
the  outside  public  the  liability  of  members  is  unlimited. 
Inside  the  bank  members  ought  to  limit  it  for  them- 
selves, say,  what  is  to  be  the  maximum  amount  loanable 
to  any  one  among  them,  and,  it  may  be,  also,  the  max- 
imum amount  to  be  loaned  out  collectively.     That  adds 


UNLIMITED  LIABILITY  129 

greatly  to  safety.  There  is  likely  to  be  a  maximum 
fixed  by  the  law  of  the  land.  However  the  bank  ma}^ 
desire  to  go  below  that.  Supposing  that  a  maximum 
is  fixed,  the  Committee  can  obviously  exceed  such  only 
on  its  own  responsibility.     The  bank  will  not  be  liable. 

In  other  respects  it  is  better  not  to  tie  the  hands  of 
the  Committee  overtightly,  say,  with  regard  to  the  rates 
of  interest  severally  on  deposits  and  on  loans.  Decision 
by  the  General  Meeting  is  a  process  which  takes  time. 
Circumstances  might  demand  prompt  action. 

What  has  been  said  will  give,  in  outline,  a  general 
idea  of  what  an  imlimited  liability  bank  of  the  Eaif- 
feisen  type  is  intended  to  be.  There  are  minor  details 
which  are  rather  matter  for  specific  rules.  For  a  de- 
scriptive -  account  of  the  remarkable  good  that  these 
banks  have  done  this  is  not  the  place.  That  has  been 
given  elsewhere.^  It  will  be  seen  that,  if  on  the  one 
hand,  these  banks  can  by  no  means  claim  the  distinc- 
tion of  being  —  as  is  sometimes  given  out  —  the  only 
type  of  banks  qualified  to  benefit  Agriculture,  they 
have,  on  the  other  hand,  an  immense  province  of  the 
most  useful  and  beneficent  work  specially  assigned  to 
them,  as  distinctively  their  own,  among  the  humble 
toilers  in  country  districts.  They  were  never  intended 
for  dense  populations  in  towns.  And  they  were  never 
intended  for  individually  large  business.  Their  work 
is  altogether  "  detail  work."  But  it  is  the  work  of  the 
single  bricks  which  collectively  make  up  the  big  build- 
ing.    It  is  work  which  no  other  institution  could  per- 

1  See  the  author's  "People's  Banks:  a  Kecord  of  Social  and 
Economic  Success."     Third  edition.     1910, 


130  CO-OPERATIVE  CREDIT 

form  with  anything  like  the  same  thoroughness  or  suc- 
cess. They  are  more  successful  and  more  eflScient  by 
far  than  purely  philanthropic  organizations,  which 
deal  out  gifts  or  what  may  under  stress  of  necessity 
become  gifts,  because  they  throw  the  man  to  be  bene- 
fited upon  his  own  resources  and  his  own  efforts  and, 
together  with  economic  good,  endow  him  with  more 
valuable  and  lasting  possessions,  a  strengthened  char- 
acter and  businesslike  habits.  There  might  be  room 
for  them  in  the  United  States.  And,  it  may  be  added, 
they  have  never  gone  anywhere  —  in  the  right  place, 
where  there  was  need  for  them  —  but  they  have  yielded 
the  same  benefits  and  really  astounding  results. 


CHAPTER  V 

CENTRAL    INSTITUTIONS 

Very  little  practical  experience  sufficed  to  bring 
home  to  the  pioneers  of  the  co-operative  banking  move- 
ment in  Europe  that,  useful  as  were  co-operative  banks 
in  their  separate  existence,  union  among  a  number  of 
them  must  add  greatly  both  to  their  stability  and  to 
their  permanence,  valuaole  attributes  that  these  are,  as 
well  as  to  their  utility.  On  the  very  face  of  things, 
it  must  strike  people  reflecting  on  the  matter  as  almost 
self  evident  that,  if  co-operation  among  individuals  is 
good,  the  extension  of  the  principle  to  the  point  of  co- 
operation among  co-operative  organisations  must  not 
only  be  fully  in  keeping  with  the  character  of  the  in- 
stitution, but  must  also  add  considerable  force  in  pre- 
cisely the  same  way  on  a  wider  basis. 

Now,  combination  or  union  may  be  in  this  connec- 
tion effected  in  two  distinct  ways  which  will  have  to 
be  considered  separately,  although  in  practise  their  ser- 
vices may  occasionally  without  detriment  be  to  some 
extent  combined. 

In  the  first  place  there  is  union  without  any  thought 
of  business,  mainly  for  common  consideration  of  com- 
mon ends,  the  comparing  of  notes  and  experiences,  the 
study  of  new  departures,  uniformity  within  the  ranks 

131 


132  CO-OPERATIVE  CREDIT 

of  tlie  movement,  propaganda,  united  defence  of  com- 
mon interests,  watching  of  legislation  and  the  like. 
There  is  no  movement  comprising  a  multitude  of  mem- 
bers, which  will  not  be  the  better  for  union  of  this  sort. 
The  remarkable  success  achieved  by  German  Unions 
for  the  promotion  of  German  credit,  which  have  studied 
common  action  from  a  very  early  period  of  their  exist- 
ence —  the  Schulze-Delitzsch  Union  was  the  first  co- 
operative union  to  be  formed  at  all,  as  long  ago  as  in 
1859,  preceding  by  a  full  decade  the  "  Co-operative 
Union  "  of  the  United  Kingdom  —  goes  far  indeed  to 
support  this  assumption.  oSI^ot  only  have  the  many  or- 
ganisations forming  part  of  it  derived  unquestionable 
economic  benefit  from  such  union,  and  has  the  progress 
of  the  movement  been  decidedly  accelerated,  but,  once 
union  had  come  to  take  full  effect,  the  banks  of  this 
type  have  issued  from  the  process  with  a  pronounced 
stamp  of  uniformity  and  a  cachet  of  quality  impressed 
upon  them,  which  have  greatly  added  to  their  standing 
and  credit,  making  business  much  easier  and  actually 
inspiring  envy  in  others.  There  are  as  excellent  banks 
among  the  Italian  banche  popolari.  M.  Luzzatti,  their 
founder,  will  have  it  that  the  best  of  them  even  excel 
the  best  German  in  co-operative  character.  But  he 
himself  admits  that  in  the  ruck  they  do  not  come  up  to 
the  same  standard.  Tliat  is  simply  because  there  has 
not  been  a  union  to  teach  every  one  of  them  what  the 
others  are  doing,  to  whet  the  intelligence  of  the  admin- 
istrators, by  bringing  them  regularly  to  compare  notes 
with  colleagues  from  elsewhere  and  —  above  all  things 
—  to  exercise  a  moral  authority  and  discipline  over 


CENTRAL  INSTITUTIONS  133 

them  and  so  make  for  homogeneity,  mainly  by  that  ad- 
mirable institution,  union  inspection  —  of  which  there 
will  be  something  more  to  say  in  the  succeeding  chap- 
ter. Suffice  it  here  to  point  out  that  at  the  annual 
congresses  of  the  Union  the  sittings  of  the  Union  In- 
spectors, discussing  common  experiences  in  inspection, 
form  one  of  the  most  interesting  and  instructive  fea- 
tures. Late  in  the  day,  accordingly,  has  M.  Luzzatti, 
quite  recently,  addressed  himself  to  supplying  what  is 
lacking  in  Italy,  in  the  shape  of  an  organised  union 
and  inspection  by  union  officers.  A  Union  speaks  and 
acts  with  authority — within  its  own  ranks  and  with- 
out. It  represents  the  considered,  the  carefully  ma- 
tured opinion  of  "  the  movement."  That  opinion  is 
likely  to  be  correct,  because  it  is  based  upon  most  varied 
experience  and  upon  the  reflection  of  many  expert 
minds.  Legislatures  cannot  pass  it  by.  Political 
authorities  cannot  ignore  it.  And,  for  the  movement 
itself,  in  the  multitude  of  counsellors  there  is  likely  to 
be  found  wisdom  —  and,  in  this  case  at  any  rate,  also 
disciplinary  power  —  disciplinary  power  which  is 
moral,  but  which  might,  in  extreme  cases,  find  its  ex- 
pression in  expulsion  —  such  as  could  not  fail  to  im- 
pair the  status  of  the  bank  expelled.  Union  accord- 
ingly makes  for  strength,  and  quality,  and  authority, 
and  deserves  to  be  practised  wherever  it  is  possible 
among  organisations  of  the  same  type,  more  particularly 
in  a  movement  which  necessarily  relies  on  recognised 
status  and  as  necessarily  aims  at  propaganda.  In  Ger- 
many, although  of  course  there  is  no  compulsion  or 
even  pressure  of  any  kind  used  to  make  societies  enter 


134.  CO-OPERATIVE  CREDIT 

a  union,  and  although  there  are  some  very  good  banks 
which  have  remained  outside,  nevertheless  co-operative 
banks  generally  have  gained  greatly  by  union  and  are 
aware  of  the  fact. 

In  the  second  place,  there  is  union  for  business  pur- 
poses. Eelatively  strong  in  capital  as  a  successful  co- 
operative bank  may  be,  in  its  absolute  financial  power 
it  will  necessarily  fall  short  — possibly  by  a  great 
deal — of  the  status  of  a  capitalist  institution  of  the 
same  sort.  The  diiference  will  necessarily  be  ac- 
centuated by  what  practically  will  be  the  amateur  char- 
acter —  from  a  business  banker's  point  of  view  —  of 
the  managing  officers  in  the  movement.  The  latter 
does  not  want  and  could  not  maintain  fully  trained 
bankers.  Its  objects  are  different  from  those  of  capi- 
talist banks,  its  transactions  are  more  circumscribed,  it 
looks  for  different  services,  such  as  a  trained  banker 
in  many  cases  conceivably  could  not  render,  but  the 
lack  of  which  may  place  the  co-operative  bank  at  a 
disadvantage  in  the  great  banking  market. 

!N'ow  at  this  point,  just  as  in  the  union  of  members 
to  a  single  bank,  combination  may  with  certainty  be 
counted  upon  to  make  good  at  any  rate  much  of  that 
which  is  wanting.  It  makes  the  single  dollar  go  further 
and  produce  more  wealth-creating  work  —  like  the  gold 
lodged  in  the  cellars  of  a  great  national  issue  bank, 
say,  the  Bank  of  England  or  of  Franco.  This  consid- 
eration comes  all  the  more  weightily  into  account  in 
an  institution  which  may  have  a  certain  amount  of 
hostility  and  opposition  to  encounter.  It  may  become 
a  case  of  "United  we  stand,  divided  we  fall."     The  re- 


CENTRAL  INSTITUTIONS  135 

sources  of  each  individual  bank  are,  as  already  ob- 
served, likely  to  be  circumscribed.  The  small  capital 
of  each  may  not  at  all  times  be  sufficient  by  itself  for 
the  calls  made  upon  it  —  while  its  neighbour  may  at 
the  same  time  be  wallowing  in  money.  Let  the  two 
join  hands,  and  combined  they  will  be  able  to  achieve 
very  much  more  than  in  separation,  each  by  itself. 
And  the  broader  the  basis,  the  more  comprehensive  the 
union  —  which  is  perfectly  feasible  without  interlock- 
ing of  liability,  such  as  must  needs  be  kept  apart  for 
every  member-bank  —  the  more  marked  will  be  the 
strengthening  effect. 

It  may  be  well  from  the  outset  of  the  present  con- 
sideration to  call  special  attention  to  this  aspect  of  the 
question,  because  another,  false,  aspect  has  been  more 
and  more  forced  into  the  foreground,  which  has  pro 
ianto  led  the  issue  on  this  particular  point  upon  per- 
ilous ground.  It  is  above  all  things  as  a  balancing 
centre,  a  clearing  house,  that  a  central  organisation  for 
business  purposes  among  co-operative  banks  is  wanted 
—  to  make  the  capitals  and  machinery  of  the  banks 
united  supplement  one  another,  thereby  achieve  more, 
to  act  as  a  bank  of  banks,  in  which  local  banks  may  have 
their  several  accounts,  the  funds  being  available  for 
common  use  under  separate  responsibility,  becoming 
serviceable  for  all  —  just  as  in  the  banking  department 
of  the  Co-operative  Wholesale  Society  of  England  (a 
most  successful  institution)  and  the  surplus  funds  of 
the  members  of  that  body,  the  local  societies,  collected 
into  one  common  cash  box,  suffice  for  the  use  of  each 
individual  one  —  and  for  very  much  more. 


186  CO-OPERATIVE  CREDIT 

There  is  more,  besides,  that  union  for  business  pur- 
poses may  accomplish.  We  possess  the  proof,  once 
more,  in  that  distinguished  Union,  the  Union  of  co- 
operative banks  of  the  Schulze-Delitzsch  type  in  Ger- 
many. These  banks  have,  solely  by  means  of  union, 
secured  —  outside  the  business  sphere  of  a  central  bank 
—  for  their  members  most  valuable  banking  benefits. 
They  have  been  among  the  first  to  acclimatise  the 
cheque  in  Germany,  and  with  the  cheque  also  the  clear- 
ing house,  among  themselves.  They  have  introduced 
a  common  collecting  union  —  which  is  found  most 
valuable  —  banks  within  the  Union  undertaking  to 
present  bills,  acceptances  and  cheques  for  payment  and 
collect  accounts  free  of  charge  for  one  another  through- 
out the  Empire.  They  have  worked  out  for  themselves 
that  system  of  society  inspection  which  has  now  on 
the  European  Continent  become  a  common  rule  and  is 
at  present  insisted  upon  by  legislation.  They  have  like- 
wise, not  to  carry  the  catalog-ue  of  their  services  any 
further,  organised  a  regular  information  and  inquiry 
service  for  members  of  the  Union.  Bill  drawing,  or 
else  (in  the  South)  presentation  of  acceptances,  are 
common  practices  all  over  Germany.  Scarcely  any- 
thing is  done  in  business  without  the  use  of  such  in- 
struments of  credit  —  all  the  more  since  cheques  are 
only  of  very  recent  introduction  and  even  now  far  from 
general.  Of  course  these  instruments  of  credit  are 
abused.  There  are  bucket  shops  in  Germany  as  else- 
where. And  time  was  when  co-operative  banks  suffered 
serious  loss  by  their  fraud.  The  information  service 
has  set  that  right  —  for  the  Schulze-Delitzsch  banks. 


CENTRAL  INSTITUTIONS  137 

It  has  become  so  widely  spread  and  so  searching  in  its 
inquiries  that  "  Othello's  occupation  is  gone,"  or  all  but 
gone,  so  far  as  united  co-operative  banks  are  concerned. 
But  these  are  really  only  adventitious  services,  over 
and  beyond  the  principal  one,  which  is,  as  already  in- 
dicated, that  of  providing  a  balancing  institution,  hav- 
ing the  character  of  a  central  bank,  in  which  overplus 
and  deficiency  occurring  in  the  several  local  banks  may 
be  equalised.  There  is  an  additional  service  which 
may  be  demanded  from  such  an  institution.  Times 
will  come  when  even  the  collective  means  at  the  dispo- 
sal of  these  combined  banks  will  prove  unequal  to  an 
exceptional  demand  for  credit  —  just  as  there  have 
been  times  when  there  was  too  much  money  and  too 
little  business.  In  such  emergencies  a  central  bank 
will  be  far  better  able  than  individual  banks,  and  on 
more  favourable  tenns,  to  place  itself  into  communica- 
tion with  the  great  money  market,  to  unload  there  the 
excess  of  collected  funds,  or  else  to  tap  it  by  borrowing 
for  the  benefit  of  its  affiliated  societies.  It  will  repre- 
sent greater  strength  than  they  and  therefore  obtain 
better  terms  and  operate  with  greater  ease  and  freedom. 
And  it  will  also  be  better  qualified  for  such  business 
on  other  grounds.  The  banking  of  local  banks  is  dis- 
tinctly a  different  kind  of  banking  from  that  of  the 
great  banking  world.  Its  practises  are  different  and 
its  wants  are  different.  It  is  built  up  upon  a  co-opera- 
tive basis,  which  will  be  all  the  better  for  its  own 
purposes  the  more  genuinely  co-operative  it  is  —  which 
is  admirable  for  safety,  but  ties  the  hands  of  adminis- 
trators not   a  little.     In  Germany  where,   among  co- 


138  CO-OPERATIVE  CREDIT 

operative  banks  on  a  share  basis,  commercialism  is  often 
strong,  banks  laying  themselves  out  for  larger  and  more 
varied  business  have  sometimes  found  co-operative  or- 
ganisation restricting  their  capacity  for  quick  action, 
and  have  therefore  —  ill-advisedly  —  forsaken  Co-op- 
eration, to  become  joint  stock  companies.  Their  direc- 
tors have  freely  owned  to  me  that  they  get  on  much 
better  on  this  footing.  Xo  doubt  they  do;  but  the 
members  have  thereby  lost  the  valuable  —  almost  in- 
valuable —  possession  of  a  bank  of  their  very  oven,  the 
services  of  which  they  could  claim  as  a  matter  of  right 
and  the  management  of  which  they  could  control. 

A  central  bank  will  necessarily  assume  to  a  far 
greater  extent  the  character  of  a  commercial  bank.  It 
is  to  form  the  connecting  link  between  co-operative  and 
commercial  banking.  Its  business  will  be  to  under- 
stand the  system  of  co-operative  banks  and  adapt  itself 
to  it,  but  also  to  deal  for  them  in  the  great  banking 
market.  It  will  in  fact  have  to  render  the  same  service 
to  its  affiliated  banks  that  a  "  transformer  "  in  the  elec- 
tric service  renders  to  subscribers  to  that  service,  con- 
verting the  "  high  tension  "  current  coming  to  it  from 
the  generator  into  "  low  tension  "  current  for  practical 
use  at  the  several  stations.  Its  officers  will  have  to  be 
trained  for  the  business  of  the  wider  banking  market; 
they  will  be  more  of  trained  bankers.  And,  being  a 
bigger  bank,  the  central  bank  can  afford  to  employ  such. 

Unfortunately  this  "  tapping "  and  "  financing " 
business  has  come  to  be  given  the  precedence  over  the 
balancing  action  in  only  too  many  quarters.  There 
can  be  no  question  that  newly  formed  co-operative  banks 


CENTRAL  INSTITUTIONS  139 

often  experience  difficulty  in  raising  the  requisite  first 
funds.  Schulze  had  difficulty  of  this  sort  to  contend 
with;  and  so  had  Raiffeisen.  And  in  respect  of  Italy 
the  good  services  which  the  free  Savings  banks  of  that 
country,  and  also  the  commercial  banks,  have  rendered 
to  co-operative  banks  in  their  early  years  —  although, 
as  j\I.  Luzzatti  has  repeatedly  insisted,  not  as  a  work  of 
altruism,  but  in  their  own  interest  —  should  not  be 
forgotten.  But  co-operative  banks,  as  national  author- 
ities here  and  there  held,  it  was  desirable  that  there 
should  be.  Accordingly  it  has  been  judged  advisable 
to  endow  special  institutions  for  them,  to  provide  the 
first  nourishment  for  the  newly  born  babe.  And,  as 
habits  gi'ow  upon  people  with  continual  use,  such 
"  sucking  "  of  the  motherbank  has  become  a  recognised 
and  confirmed  practice,  carried  far  beyond  the  limits 
of  babyhood,  and  accepted  as  a  permanent  benefit,  an 
enduring  foundation  for  the  fabric  raised  upon  it  —  to 
the  loss  of  all  the  more  valuable  benefits  of  common  ac- 
tion and  the  renunciation  of  all  genuine  Co-operation. 

This  abuse  apart,  central  banking  institutions,  al- 
though in  no  wise  indispensable,  have  proved  exceed- 
ingly useful  organisations,  presenting  however  in  their 
creation  certain  difficulties  —  for  which  reason  it  is  all 
the  more  desirable  that  their  systems  and  benefits,  and 
the  dangers  to  which  they  are  exposed,  should  be  briefly 
explained. 

There  are,  in  the  main,  three  distinct  schemes  of  or- 
ganisation to  be  taken  into  account,  each  of  which  has 
its  own  advocates.  As  a  common  rule  for  all  it  may 
be  laid  down  that  in  this  application  unlimited  liability 


140  CO-OPERATIVE  CREDIT 

is  not  admissible.  There  can  be  not  the  slightest  doubt 
about  that.  Unlimited  liability  has  had  to  be  resorted 
to  before  limited  liability  had  become  legally  recog- 
nised, and  it  has  answered  badly,  as  in  fact  it  was 
bound  to  do.  For  the  conditions  for  its  successful  ap- 
plication are  in  this  connection  wholly  wanting.  Of 
necessity  it  has  in  this  case  to  be  exercised  without  the 
full  knowledge  and  consent  of  those  upon  whom  its 
obligations  ultimately  rest.  The  body  which  admin- 
isters it  will  necessarily  be  distinct  from  those  who 
answer  for  it.  That  body  may  be  properly  elected  by 
them.  But  there  cannot  possibly  be  the  requisite  touch 
between  the  two.  You  can,  with  safety,  make  yourself 
unlimitedly  liable  only  when  you  have  knowledge  and 
full  power  of  control  with  regard  to  whatever  is  being 
done.  That  cannot  be  in  a  central  bank,  in  w'hich  the 
liability  of  various  banks,  and  through  them  of  their 
members,  must  become  prejudicially  interconnected  and 
entangled,  so  that  no  one  will  quite  know  what  he  is 
responsible  for.  As  the  Latin  proverb  has  it,  "  the 
pig  may  be  made  to  pay  for  wdiat  the  dog  has  done 
amiss."  Liability  must  in  every  case  be  limited,  and 
it  will  best  be  limited  to  the  actual  amount  of  the  share ; 
for  then  there  will  be  no  power  of  payment  left  in 
doubt. 

Another  general  rule  is,  that  in  a  central  bank  co- 
operative organisation  is  out  of  place.  Co-operative 
spirit  there  should  be  —  distinctly  so.  But  the  legal 
form  of  the  organisation  should  be  that  of  a  joint  stock 
company.  That  has  likewise  been  made  clear  by  ex- 
tensive experience.     For  a  larger  body  joint  stock  or- 


CENTRAL  INSTITUTIONS  141 

ganisation  provides  far  greater  freedom  of  action  and 
the  difference  made  in  the  form  of  registration  will 
serve  to  emphasise  the  essential  difference  in  the  char- 
acter of  the  two  institutions  and  their  separate  responsi- 
bility, each  one  for  itself. 

This  being  premised,  it  may  be  said  that  the  proposed 
central  bank  may  be  either  a  bank  of  banks  —  started, 
so  it  may  be,  with  some  private  capital,  but  certainly 
destined  eventually  to  become  the  property  of  the  banks 
to  which  it  ministers,  they  being  its  shareholders  and 
governing  it  through  their  elected  Board.  The  Cen- 
tral Bank  of  the  Eaiffeisen  Union  is  an  organisation 
of  this  sort ;  and  so  is  the  Central  Bank  of  the  excellent 
co-operative  banks  of  the  Schulze-Delitzsch  type  in  the 
Polish  provinces  of  Prussia,  which  on  political  or  racial 
grounds  form  a  distinct  union. 

Or  else  the  central  bank  may  be  a  bank  primarily  of 
the  capitalist  type,  owned  by  shareholding  capitalists 
—  with  some  representation  given  to  the  co-operative 
societies  with  which  it  is  proposed  to  do  business  —  but 
created  to  do  business  of  a  general  kind  on  its  own  ac- 
count, though  opening  accounts  also,  as  a  special  fea- 
ture, to  co-operative  banks,  taking  their  overplus  cash 
and  supplying  them  with  credit  as  occasion  may  re- 
quire. Such  a  bank  was  that  of  Sorgel,  Parisius  and 
Co.,  which  for  a  long  time  served  as  a  central  bank  for 
the  German  Schulze-Delitzsch  societies.  Such  —  in  a 
manner  —  is  now  the  powerful  Dresdner  Bank,  which 
in  such  connection  has  taken  the  place  of  that  just  men- 
tioned, in  so  far  as,  after  amalgamating  with  Sorgel, 
Parisius  and  Co.,  it  has  instituted  a  separate  co-opera- 


142  CO-OPERATIVE  CREDIT 

tive  section,  to  the  Board  of  which  it  has  admitted  rep- 
resentatives of  the  co-operative  banks  to  be  dealt  with, 
as  directors.  That  same  bank  also  acts  in  a  similar 
capacity,  so  it  may  at  once  be  mentioned,  at  the  back  of 
their  own  Central  Bank,  for  the  Raiffeisen  societies. 

In  the  third  place  there  are  central  banks  formed  al- 
together with  outside  capital,  whether  public  or  private, 
as  wholly  independent  institutions  for  the  benefit  of  co- 
operative banks,  which  they  merely  undertake  to 
"  finance,"  as  a  business  of  their  own,  to  bring  them 
profit,  or  else  as  an  act  of  patronage.  In  this  shape  the 
idea  of  a  balancing  centre  becomes  relegated  to  a  second 
place  or  else,  it  may  be,  altogether  neglected,  and  the 
primary  object  of  the  central  bank  becomes  that  of 
"  financing,"  providing  local  banks  with  money.  That 
is  not  a  genuinely  co-operative  object.  It  is  accord- 
ingly not  at  all  approved  of  by  co-operators  believing 
in  self-help.  Of  this  type  are  the  State-endowed  Cen- 
tral Co-operative  Bank  of  Prussia  and  several  other 
banks  formed  in  imitation  of  it  in  other  parts  of  Ger- 
many, and  the  Central  Banks  of  Eoumania  and 
Hungary,  and  —  although  it  is  not  a  bank  in  form  — 
essentially  also  the  French  Credit  Agricole. 

Now  of  these  three  types  the  first  presents  itself  as 
the  most  natural  under  the  circumstances,  an  institution 
which  plainly  explains  itself.  It  is  Co-operation  car- 
ried one  step  higher,  from  co-operation  among  in- 
dividuals to  co-operation  among  co-operative  societies 
formed  of  such  individuals.  One  drawback  to  it  is 
that  under  such  conditions  it  is  not  always  easy  to  col- 
lect sufficient  cash  —  which  difficulty  has  all  the  more 


CENTRAL  INSTITUTIONS  143 

to  be  taken  into  account  since  the  business  of  the  central 
bank  must  under  the  co-operative  principle  which 
dominates  it,  be  so  ordered  as  not  to  produce  much 
profit.  Co-operative  business  is  safe  business;  but  it 
is  not  highly  paying  business;  and  it  may  be  slow. 
Therefore  it  demands  in  the  central  organisation  a 
certain  command  of  money  to  be  depended  upon,  upon 
which  local  banks  may  draw  as  need  suggests.  But  a 
collective  bank  formed  of  purely  local  banks,  whicK 
were  themselves  formed  by  members  whose  impelling 
motive  is  their  want  of  cash,  is  not  likely  quickly  to 
accumulate  such.  Another  drawback  is  this,  that  un- 
der such  arrangement  you  practically  set  men  who  may 
be  excellent  co-operators  and  capable  of  administering  a 
co-operative  bank  on  the  lower  plane  to  perfection,  to 
act  under  great  responsibility  in  a  province  not  at  all 
their  own,  that  is,  as  commercial  bankers.  That  is  a 
dangerous  experiment.  The  Polish  banks  have  sur- 
mounted both  these  obstacles  because,  in  the  first  place, 
they  have  a  strong  nationalist  feeling  at  their  back, 
which  is  constantly  being  stimulated  by  German  perse- 
cution and  which  prompts  sacrifices  for  the  "  cause." 
Moreover  they  are  all  share  banks,  disposing  of  fair 
amounts  of  money.  Also,  for  their  simple  purposes  — 
the  "  balancing "  action  predominating  altogether  — 
they  are  very  efficiently  organised  and  well  officered. 
The  Eaiffeisen  Central  Bank  has  had  occasional  trouble 
about  the  provision  of  money ;  but,  generally  speaking, 
in  its  proper  capacity,  as  a  central  bank  for  local  banks, 
it  has  answered  exceedingly  well.  And  its  very  trials 
have  brought  out  with  telling  force  the  substantial  re- 


144.  CO-OPERATIVE  CREDIT 

sources  which  Co-operation  places  at  the  back  of  its  in- 
stitutions. To  say  that  "  it  has  had  its  occasional  trou- 
bles about  the  provision  of  money  "  does  not  at  all  mean 
that  in  general  its  credit  has  not  sufficed  for  its  wants. 
So  strong,  on  the  contrary,  did  it  feel  in  the  possession 
of  its  credit  resources  that,  in  1895,  when  the  Prussian 
Government  set  up  its  State  endowed  Central  Bank, 
it  flatly  refused  to  enter  into  relations  with  it,  because 
it  knew  very  well  how  to  supply  itself  with  money  with- 
out such  help.  So  strong  was  its  financial  position  that 
the  Imperial  Bank  of  Germany  allowed  it  preferential 
discount  terms.  It  was  eventually  prevailed  upon  to 
accept  State  bank  credit,  Government  pressure  proving 
overpowering.  But  not  many  years  passed  before  it 
saw  reason  to  regret  such  yielding  and  it  lost  no  time 
in  throwing  off  the  promised  "  support "  which  had 
revealed  itself  as  a  galling  yoke.  As  a  central  bank 
for  village  banks  the  Raiffeisen  Central  Bank  answers 
its  purpose  perfectly.  As  a  central  bank  for  large 
quasi-commercial  banks  like  those  of  Schulze-Delitzsch 
and  M.  Luzzatti  it  would  probably  answer  less  well. 
But  it  is  very  suitably  adapted  to  its  own  peculiar  en- 
vironment. And  the  very  centralisation  on  which  it 
is  based,  which  is  sometimes  found  fault  with  by  adhe- 
rents of  other  schools,  is  altogether  in  its  favour.  For 
that  centralisation  ensures  uniformity,  general  accept- 
ance of  the  same  principles  and  methods,  and  it  enables 
it  to  ''  balance  "  among  districts  far  removed  as  well 
as  among  individual  banks.  The  benefits  are  very  ap- 
parent. Operating  all  over  Germany,  the  Central  Bank 
has  to  do  with  districts  marked  by  absolutely  different 


CENTRAL  INSTITUTIONS  145 

features  —  some  densely  populated,  industrial  and  agri- 
culturally highly  developed,  "  intensive,"  like  those  in 
the  West  of  the  Empire,  where  money  is  plentiful  and 
cheap  and  deposits  are  voluminous ;  others  sparsely  pop- 
ulated and  primitive,  in  which  industry  is  practically 
unkuo\^ai,  and  agi'iculture  extensive  and  backward,  such 
as  those  in  the  East,  bordering  more  or  less  upon  Rus- 
sia. Since  the  Central  Bank  operates,  not  for  profit, 
but  for  service  to  local  banks,  and  there  are  no  inter- 
mediate tolltakers  —  as  there  w^ould  be  if  the  business 
were  not  centralised  —  it  can  readily  make  the  over- 
flowing deposits  or  cheaper  loans  of  w^estern  districts 
available  without  a  rise  in  interest  for  the  wants  of 
the  eastern.  This,  so  it  needs  not  to  be  pointed  out, 
has  been  found  a  valuable  benefit.  And  such  services 
as  this  tend  to  keep  the  Union  "  together."  There 
may  be  room  for  similar  services  in  the  United  States. 
Under  the  organisation  of  the  Eaiffeisen  Central  Bank 
the  sectional  offices  are  branches,  not  independent  es- 
tablishments. The  reins  of  the  business  are  held  with 
a  firm  grip  by  the  central  establishment.  The  ruinous 
disasters  which  recently  clouded  over  the  horizon  of 
co-operative  banking  in  Germany  occurred,  not  under 
centralisation,  but  quite  the  reverse,  under  the  sway  of 
the  independent  system,  which  was  set  up  in  opposition 
to  the  Eaiffeisen  system,  which  prides  itself  upon  its 
distinctive  feature  of  Decentralisation  and  which  makes 
every  district  bank  its  own  uncontrolled  master. 

The  fly  that  has  in  the  Eaiffeisen  Central  Bank  even- 
tually been  found  in  the  ointment  —  on  two  several 
occasions  —  sprang  from  an  altogether  different  breed- 


146  CO-OPERATIVE  CREDIT 

ing  place.  The  gentlemen  who  presided  over  the  Cen- 
tral Bank  were  good  men,  but  thej  were  not  expert 
bankers,  in  the  accepted  sense  of  the  term.  Thej  were 
animated  by  great  co-operative  zeal,  which  prompted 
them  to  offer  help  to  co-operative  institutions  of  their 
Union  beyond  what  was  safe.  The  heap  of  gold  under 
their  management  dazzled  them..  Was  there  not  "  corn 
in  Egypt "  ?  They  did  not  realise  what  heavy  claims 
there  might  be  made  upon  that  hoard.  Also  in  their 
optimism  they  made  light  of  risks  in  other  ventures, 
carried  far  beyond  what  co-operative  ventures  should 
be  —  which  risks  eventually  found  them  out.  To  be- 
gin with —  under  temptation  —  they  made  the  mistake 
of  bracketing  dealing  in  goods  with  banking.  There 
was  probably  more  provocation  for  this  than  the  mere 
difficulty  of  finding  any  other  body  to  take  over  the 
central  trading.  The  circumstances  were  peculiar. 
Eaiffeisen  societies,  as  already  observed,  are  not  banks 
only,  but  societies  for  all  purposes.  The  Central  Bank 
had  become  their  recognised  centre.  That  was  good 
enough  while  the  main  business  consisted  of  banking. 
But  trading  had  meanwhile  assumed  larger  dimensions 
and  called  for  a  central  organ.  That  collective  trading 
had  up  to  the  time  spoken  of  been  conducted  by  Eaif- 
feisen  himself  and  some  people  in  his  confidence,  act- 
ing as  a  private  firm,  but  not  for  profit.  Their  con- 
duct came  to  be  called  in  question  by  opponents. 
They  were  said  to  be  making  broad  their  phylacteries 
of  altruism  while  netting  a  very  good  profit  for  them- 
selves on  the  sly.  To  meet  this  slander  they  resolved 
to  hand  over  the  business  to  some  electively  organised, 


CENTRAL  INSTITUTIONS  147 

responsible  body.  Now  was  it  advisable  to  start  a 
second  "  centre  "  ?  The  leaders  of  the  societies  thought 
not.  Besides,  the  bank,  as  a  bank,  had  in  early  days 
a  straggle  to  carry  on.  Its  business  was  safe,  but  left 
little  margin.  There  was  the  central  trading.  And 
there  was  as  yet  no  organised  body  to  take  it  in  hand. 
Things  were  simple  in  those  days.  Trading,  as  the 
immense  capital  amassed  by  the  two  great  Wholesale 
Societies  of  England  and  Scotland  sufficiently  demon- 
strates, yields  ample  profits.  The  trading  would  per- 
mit the  Central  Bank  to  render  its  services  all  the  more 
cheaply.  Precisely  the  same  combination  was  subse- 
quently adopted  by  the  Haas  Union.  All  the  same  this 
was  a  huge  mistake,  which  I  denounced  rather  em- 
phatically in  a  paper  that  I  read  at  the  International 
Co-operative  Congress  held  at  Buda  Pest  in  1904. 
Both  unions  named  abandoned  it  shortly  after,  and  both 
are  the  better  for  the  change.  But  what  mainly 
damaged  the  Eaiffeisen  Central  Bank  was  its  stepping 
outside  its  own  province  —  with  thoroughly  good  "  co- 
operative "  intentions  —  to  buy  sites  in  advance  for 
co-operative  works  and  warehouses  still  to  come,  to  run 
unprofitable  superphosphate  works,  and  to  prop  up  with 
its  credit  shaky  co-operative  undertakings  which  should 
never  have  been  entered  upon.  All  this  was,  not  Co- 
operation, but  Speculation.  It  brought  about  a  crisis. 
However  the  value  and  sufficiency  of  the  Central  Bank 
as  a  central  bank  was  promptly  and  all  the  more  con- 
clusively demonstrated  by  the  remarkable  ease  with 
which  it  recovered  from  the  blow  —  a  heavy  one  — 
saving  up  money  rapidly  out  of  its  annual  surpluses 


148  CO-OPERATIVE  CREDIT 

such  as  places  the  early  repayment,  with  interest,  of 
the  contribution  of  $187.50,  which  had  to  be  asked  for, 
as  a  voluntary  levy,  from  each  of  the  more  than  4,000 
societies  affiliated,  altogether  beyond  doubt.  As  a  cen- 
tral bank  proper  the  Kaiffeisen  Central  Bank  has  won 
its  spurs.  Its  new  arrangement  with  the  great  Dres- 
dner  Bank  —  after  its  rupture  with  the  ever  domineer- 
ing State-endowed  Bank  —  renders  its  position  as  secure 
as  well  can  be.  It  leaves  it  to  deal  with  its  local  banks 
alone  and  commits  all  dealings  with  the  banking  mar- 
ket to  that  commercial  institution  very  much  better 
equipped  and  qualified  for  such  business.  Within  the 
limits  of  safe  banking  it  secures  to  it  an  almost  un- 
limited command  of  money,  as  well  as  a  receptive  lodg- 
ing place  for  excessive  deposits. 

The  second  form  of  central  bank  possesses,  like  the 
first,  just  discussed,  its  distinct  recommendations,  but 
for  different  circumstances.  It  was  Schulze-Delitzsch's 
favourite  form.  He  laboured  hard  to  carry  it  into 
realisation.  Co-operative  banking  business  being  only 
sparingly  remunerative,  a  central  bank  well  endowed 
with  capital,  to  live,  required  other  business  to  assure 
its  existence.  Being  safe,  on  the  other  hand,  co-opera- 
tive banking  business  constitutes  an  excellent  extra  sup- 
port, to  ''  fill  up."  After  various  preparatory  experi- 
ments Schulze  managed  to  start  a  bank,  a  not  incon- 
siderable part  of  the  share  capital  of  which  came  to  be 
held  by  co-operative  banks,  and  on  tlie  Board  of  which 
there  were  co-operative  bankers  of  recognised  authority. 
Once  more,  the  purely  co-operative  business  proved  en- 
tirely satisfactory.     The  bank  was  in  this  case  freely 


CENTRAL  INSTITUTIONS  149 

called  upon  to  provide  credit;  and  in  every  good  case 
it  provided  such.  However  the  same  demon  of  specu- 
lation which  injured  the  Eaiffeisen  Central  Bank  some- 
how got  into  directors'  minds.  Temptation  to  this  is 
nothing  uncommon.  And  it  requires  a  good  deal  of 
resolution  and  principle  to  withstand  it.  There  ap- 
peared to  be  a  golden  opportunity.  Why  not  break 
through  the  stiff,  cramping  rule  ?  In  the  feverish  bub- 
ble days  of  1873  the  People's  Bank  of  Milan  nearly 
ventured  itself  upon  this  rock,  on  v/hich  it  would  in- 
fallibly have  split.  And  other  People's  Banks,  such 
as  those  of  Genoa  and  of  Brescia,  have  actually'-  found- 
ered on  this  reef.  In  Germany  it  was  likewise  what 
M.  Luzzatti  has  called  hancomania  which  worked  the 
mischief.  German  banks  had  been  led  generally  to 
develop  the  speculative  side  of  banking.  Speculative 
banking  indeed  became  the  ruling  feature  among  them. 
They  became  what  Germans  themselves  frankly  call 
"  speculative  banks."  They  started  companies,  fi- 
nanced industrial  undertakings,  and  embarked  upon 
all  sorts  of  risky  enterprises  which  brought  them  in  fat 
dividends.  The  shareholders  of  the  Schulze-Delitzsch 
bank  —  Sorgel,  Parisius  and  Co. —  began  to  feel  un- 
comfortable in  their  old-world  low-per  cent,  safety.  It 
seemed  to  cast  a  slur  upon  them.  Why  should  they  not 
do  as  others  were  doing  and  rapidly  fill  their  pockets  ? 
The  directors  weakly  gave  way.  They  were  very 
capable  men  for  quiet,  unsensational,  co-operative  bank- 
ing. But  speculation  turned  out  to  be  out  of  their  line. 
Loss  followed  upon  loss.  Fatal  disaster  appeared  im- 
minent — ■  when,  as  a  deus  ex  machina,  the  Dresdner 


150  CO-OPERATIVE  CREDIT 

Bank  providentially  stepped  in  to  offer  amalgamation. 
Amalgamation  was  effected  and  saved  the  threatened 
bank.  Xow  the  Dresdner  Bank,  vs^ith  the  old  "  co- 
operative "  bank  within  it,  is  practically  the  central 
bank  for  these  exceedingly  active  and  useful  co-opera- 
tive banks,  and  the  arrangement  works  to  the  satisfac- 
tion of  both  parties.  For  active  banks,  doing  a  large 
business,  probably  no  better  arrangement  could  be 
devised. 

The  troubles  and  trials  of  these  two  types  of  central 
banks,  which  types  have  certainly  been  vindicated  in 
their  purity,  were  worth  telling  of,  because  they  show 
how  very  dangerous  it  is  for  co-operative  institutions 
to  step  outside  their  own  proper  sphere.  Wherever 
co-operative  banking  is  taken  up  afresh,  temptation  to 
go  astray  seems  to  present  itself.  It  should  be  rigour- 
ously  guarded  against.  For  yielding  to  it  has  to  be 
paid  for. 

The  third  type  of  central  bank  it  is  difficult  to  char- 
acterise as  anything  but  an  abuse.  It  starts  from  the 
false  assumption  that  Co-operation  cannot  provide  suf- 
ficient funds  for  its  own  maintenance  and  that  it  wants 
to  be  artificially  propped  up  with  funds  contributed  by 
patrons  not  directly  interested  in  its  benefits.  That 
means  putting  the  whole  scheme  upon  an  entirely  false 
foundation.  It  abandons  Co-operation  with  its  sure 
promises  of  steady  growth,  stimulating  independence 
and  continuous  creation  of  new  values,  for  patronage 
with  its  inherent  deadening  weakness,  its  enduring  de- 
pendence, caprice  and  dwindling  results.  Of  the  fault- 
iness  of  the  principle  suggesting  such  change  I  will  not 


CENTRAL  INSTITUTIONS  151 

here  speak.  The  proper  place  for  considering  that  will 
present  itself  in  a  succeeding  chapter.  However  it 
must  be  evident  that,  as  a  mere  technical  matter,  un- 
der such  circumstances  the  central  bank  assumes  a  com- 
pletely changed  character.  From  a  balancing  station, 
helping  to  keep  the  local  banks  self-supporting,  with 
occasional  drafts  upon  the  general  banking  market 
figuring  in  the  second  rank,  as  an  emergency  source  of 
supply,  it  becomes  distinctly  a  money  providing  bank 
destroying  self-reliance;  and  it  is  balancing  which  re- 
cedes into  the  background,  as  a  purely  secondary  ser- 
vice. Obviously  that  denaturates  the  character  of  the 
bank  and  undermines  the  co-operative  principle.  For 
success  Co-operation  depends  for  the  most  part  upon  co- 
operative spirit;  but  you  cannot  look  for  co-operative 
spirit  amid  such  surroundings. 

The  most  striking  example  of  such  organisation  for 
central  banking  is  to  be  seen  in  the  State-endowed  Cen- 
tral Co-operative  Bank  of  Prussia  —  and  now  prac- 
tically of  Germany  —  and  institutions  formed  in  imi- 
tation of  it.  But  things  are  not  very  different  in  Hun- 
gary, where  the  Crown  and  great  magnates  have  com- 
bined to  endow  a  bank  "  to  borrow  from,"  which  their 
nominees  administer.  And  in  France  it  is  only  the 
form  of  organisation  which  has  been  altered  —  for  very 
obvious  reasons.  In  1894,  at  the  annual  meeting  of  the 
Societe  des  AgricuUeurs  de  France,  the  late  President 
Senart,  on  the  Government's  behalf,  solicited  the  assent 
of  French  agriculturists  to  a  scheme  for  endowing  a 
central  bank  —  with  a  ridiculously  inadequate  sum  of 
public  money.     He  pleaded  for  such  a  bank  as  a  "  ne- 


152  CO-OPERATIVE  CREDIT 

cessitj."  I  immediately  chjopped  in  with  a  correction, 
substituting  the  word  "  convenience."  I  had  the  Agri- 
cuUeurs  de  Fr^ance  with  me.  The  scheme  fell  through. 
Next  year  Prussia  led  the  way  with  the  creation  of  a 
State-endowed  Central  Bank.  It  would  of  course  not 
do  for  France  to  tread  in  P'russia's  footsteps.  So  the 
scheme  was  altered,  although  the  principle  was  re- 
tained —  and  the  endowment  was  immensely  increased. 
That  scheme  has  been  given  effect  to  in  the  shape  of  the 
Credit  Agricole,  which  employs  ample  money  extracted 
from  the  Bank  of  France  as  the  price  of  the  renewal 
of  its  charter,  to  distribute  among  farmers.  The  Gov- 
ernment professes  to  be  very  proud  of  the  results  that 
it  has  achieved  —  just  as  was  Lord  Cromer  of  the  sup- 
posed success  of  his  (non-co-operative)  "Agricultural 
Bank  of  Egypt,"  until  that  business  broke  down  under 
an  excessive  burden  of  arrears,  too  numerous  to  admit 
of  the  invocation  of  legal  process,  and  the  introduction 
of  "  homestead  "  rights,  which  ruined  the  credit  (here 
relied  upon)  of  small  farmers.  As  to  the  Credit  Agri- 
cole  of  France,  a  Select  C'ommittee  of  the  Chamber  has 
last  year  officially  reported  that  there  likewise  repay- 
ments fall  short  —  in  addition  to  which  reserves  (and 
capital  generally)  are  only  slowly  accumulated.  This 
scheme  had  the  good  fortune  of  enlisting  the  admira- 
tion of  the  "  American  Commission."  However  the 
French  Government  itself  is  dissatisfied  with  it  and 
has  prepared  a  thorough  recast  of  the  law,  while  the 
very  important  Agricultural  Syndicates  representing 
independent  agricultural  opinion  have  risen  in  rebel- 


CENTRAL  INSTITUTIONS  153 

lion  against  it  and  have  begun  to  organise  an  inde- 
pendent system  of  their  own. 

One  can  not  judge  the  cases  of  Russia,  of  India,  and 
of  the  neglected  parts  of  Italy  —  the  South  and  Sar- 
dinia by  the  same  rigourous  standard  as  those  of  more 
developed  countries.  Their  cases  deserve  only  passing 
mention  here,  because  the  assistance  given  —  and  tem- 
porarily necessary  —  is  not  given  through  central  banks 
in  our  present  meaning  of  the  term  —  except,  unfor- 
tunately, in  Bombay  Presidency.  That,  with  the  ex- 
ception mentioned,  such  assistance  is  taken  only  as  a 
bona  fide  temporary  help  is  apparent  —  in  India  from 
the  fact  that  after  ten  years  it  has  already  become  prac- 
tically superfluous  and  has  in  fact  almost  ceased;  in 
Russia  from  the  fact  that  the  many  co-operative  soci- 
eties forming,  giving  proof  of  creditable  vigour  and 
longing  for  independence,  are  striving  to  throw  it  off 
as  soon  as  can  be.  In  Italy  we  may  in  due  course  look 
for  similar  results. 

However,  these  cases  are  quite  exceptional  and  do 
not  really  arise  under  the  aspect  which  we  are  here  con- 
templating. Quite  briefly  to  summarise  the  defects 
of  "  financing  "  central  banks  like  those  instanced,  be 
it  said  that  they  import  a  principle  which  is  entirely 
foreign  and  indeed  hostile  to  Co-operation.  They  make 
beneficiaries  to  look  for  benefits  from  without,  which 
Co-operation  would  have  them  create  for  themselves. 
They  remove  the  inducement  to  watching  and  checking 
— and  also  to  economising.  The  central  bank,  not  be- 
ing the  banks'  own,  as  a  matter  of  necessity  applies  its 


154  CO-OPERATIVE  CREDIT 

o^vn  particular  test  of  —  to  use  Scliulze's  rather  un- 
couth German  term  —  "creditworthiness/'  which  test 
is  not  that  which  vigilant  observation  by  responsible 
fellow  members,  acquainted  with  the  merits  of  each 
case,  would  suggest,  but  purely  mechanical.  It  lays 
down  fixed  common  rules  —  such  as  no  banker,  dealing 
with  that  delicate  commodity,  credit,  would  care  to 
apply  —  treating  all  cases  alike  —  rules  which  are  apt 
to  become  a  mere  matter  of  form,  or  else  unduly  inquis- 
itive. Thus,  in  Prussia,  the  bank  asks  to  see  members' 
private  assessment  to  income  tax,  and  the  like,  which 
should  in  fairness  be  kept  secret.  Harsh  and  hinder- 
ing at  points,  it  becomes  at  other  points  loose  and  un- 
reliable. Under  such  regime  the  object  of  a  local  bank 
desiring  credit  becomes,  not  to  provide  genuine  security 
but  to  satisfy  certain  formulas  laid  down.  But  you 
cannot  measure  "  creditworthiness  "  by  a  mechanical 
standard.  One  serious  result  —  as  we  have  lately 
seen  —  of  such  handling  of  credit  is  a  dangerous  laxity 
in  checking  and  control.  The  Union  of  German  co- 
operative banks,  some  of  which  came  disastrously  to 
grief  recently  with  a  resounding  crash,  is  dependent 
for  its  supplies  upon  the  State-endowed  Bank.  And 
the  official  inquiry  instituted  by  the  Court  of  Law  has 
showTi  that  it  was  laxity  of  control  which  mainly  caused 
the  defaults  and  first  brought  on  and  then  concealed 
long  continued,  increasing  insolvency. 

Also  these  patronising  Central  banks  are  most  in- 
convenient messfellows.  It  was  the  attempt  openly 
made  by  the  State-endowed  bank  of  Prussia,  miscal- 
culating its  opponents'  supposed  weakness,  to  make  it- 


CENTRAL  INSTITUTIONS  155 

self  absolute  master  aud  to  use  the  co-operative  banks 
as  a  convenience  to  itself,  which  led  the  great  Raiffeisen 
Union  to  break  loose  from  it  in  indignant  resentment. 
And  if  the  State  patronised  "  Trade  Co-operative 
Credit  Societies  "  in  Prussia  have  not  yet  followed  such 
example,  it  is  not  because  they  do  not  feel  the  gallsore 
—  they  have  openly  complained  of  the  Bank's  unfair- 
ness to  them  —  but  because  they  lack  the  power.  And 
even  the  gi-eat  Imperial  Union,  which  is  the  bank's 
most  faithful  client  on  the  co-operative  side,  has  winced 
not  a  little  under  the  yoke,  as  the  late  Herr  Haas  has 
himself  confessed  to  me  at  one  of  the  Union  Con- 
gresses, when  his  colleagues  in  their  anger  threatened 
to  rise  against  their  master  in  rank  rebellion  —  but 
found  that  they  likewise  were  too  weak  to  do  so. 

All  such  outside  central  institutions  had  best  be  left 
alone.  Co-operation  without  self-help  and  absolute 
self-government  becomes  a  mere  name  and  cannot  pro- 
duce the  results  looked  for. 

There  is  one  form  of  "  central  bank  "  still  to  men- 
tion, which  is  found  very  useful  in  the  present  early 
stage  of  development  of  Co-operation  in  India,  but 
which  is  really  only  a  specimen  of  the  first  type  dis- 
cussed —  a  bank  of  banks  —  on  a  reduced  scale. 
Something  similar  may  possibly  be  found  useful  else- 
where. iSTot  only  are  the  rayat  members  of  the  newly 
formed  little  banks  in  India  very  poor  —  which  means, 
among  other  things,  that  they  are  unable  to  contribute 
much  in  the  way  of  deposits  —  but  they  are  also  very 
isolated  and  very  backward  in  knowledge  of  business. 
Means  of  communication  are  few  and  everything  is  uu- 


156  CO-OPERATIVE  CREDIT 

developed.  Deposit  money,  however,  there  must  be. 
Under  such  circumstances  clusters  of  local  banks  in 
various  districts  have  combined  to  form  "  central 
banks,"  which  give  their  collective  liability  as  security 
and  thereby,  as  is  found,  readily  attract  deposits  from 
outside.  The  arrangement  is  not  without  its  elements 
of  danger.  A  system  of  co-operative  banking  can  only 
be  successful  which  makes  every  individual  bank  abso- 
lute mistress  of  its  o^vn  liability  and  makes  it  stand, 
so  to  speak,  upon  its  own  bottom.  All  intermingling 
and  interlinking  of  responsibility  involves  danger.  It 
is  quite  possible  that  in  India  such  central  banks  may 
become  masters,  each  in  its  own  district  keeping  the 
local  banks  w^ith  their  liability  dependent  upon  itself 
and  practically  disposing  of  their  liability  without  al- 
lowing them  a  sufficient  voice  in  the  matter.  Under 
such  circumstances  their  liability,  upon  which  their 
creditors  rely,  must  needs  become  a  questionable  quan- 
tity. Thus  far  however  the  arrangement  appears  to 
have  answered  well  and  to  have,  indeed,  served  to 
bridge  over  the  threatening  gulf  of  isolation.  Not  only 
do  the  general  public  willingly  deposit  in  such  central 
banks,  but  joint  stock  banks  likewise  readily  open  credit 
accounts  to  them. 

There  can  be  no  doubt  that,  properly  organised  and 
properly  handled,  central  banks  are  a  convenience. 
They  may  be  counted  upon  to  increase  the  strength  of 
each  local  bank  joining  them,  they  represent  in  them- 
selves a  very  desirable  help,  and  they  are  pretty  sure, 
administering  the  combined  resources  of  the  host  which 
they  lead,  in  some  respects  with  better  knowledge,  to 


CENTRAL  INSTITUTIONS  157 

discover  new  openings  for  the  application  of  co-opera- 
tive effort,  as  they  have  done  in  Germany.  But  they 
are  not  indispensable. 

Union,  on  the  other  hand,  should  be  considered  nec- 
essary wherever  banks  have  gro\\Ti  at  all  numerous. 
You  cannot  well  retain  the  character  —  and  that  means 
the  credit  —  and  the  uniform  standard  —  which  means 
an  equality  in  reputation  —  among  a  number  of  banks 
without  a  Union.  And  propaganda  can  without  it  be 
only  desultory  and  ineffective.  It  will  be  well  to  keep 
the  several  functions  of  the  two  types  of  central  organi- 
sation distinct.  In  early  stages  the  central  bank  may 
to  some  extent  discharge  the  duties  also  properly  per- 
taining to  the  Union.  But  it  will  be  best  to  assign  to 
each  of  them  its  own  proper  sphere. 


CHAPTER  VI 

CONTROL    AND    AUDIT 

Control,  as  has  been  said,  is  the  soul  of  co-opera- 
tive banking.  In  co-operative  banking  you  work  with 
so  little  capital  and  such  amateur  personnel  and  ma- 
chinery, that  in  some  way  or  other, —  to  make  up  for 
such  defects, —  if  you  desire  to  keep  your  enterprise 
safe,  you  have  to  safeguard  it  by  other  means.  And 
those  "  other  means  "  spell  control.  If  you  study  co- 
operative banking  in  its  most  perfect  specimens,  you 
will  find  that  it  is  practically  made  up  of  control.  It 
is  essential  to  make  sure  that  all  the  wheels  of  the 
simple  machinery  work  aright,  that  every  spring  and 
every  cog  should  do  its  own  particular  duty.  So  there 
is  a  Council  to  control  the  Committee  of  Man- 
agement, and  the  General  Meeting  and  the  members 
generally  to  control  the  Council;  and  there  is  some 
higher  authority  with  greater  experience  and  greater 
banking  skill  to  control  the  bank  collectively.  The  aim 
pursued  in  all  this  is  to  close  every  crevice  against  pos- 
sible abuse  and  to  take  every  precaution  against  risk 
and  loss. 

It  ought  not  to  need  explaining  that  by  such  "  con- 
trol " —  which   in  truth,  under  the  division  of  labour 

indicated  —  is  in  practice  much  less  formidable  than 

158 


CONTROL  AND  AUDIT  159 

it  appears  in  the  description  —  more  is  meant  than 
mere  audit  or  the  verification  of  figures.  These  things 
are  necessary,  of  course.  And  although,  on  the  one 
hand,  the  final  passing  of  audit  and  the  verification  of 
figures,  to  prevent  any  imposition  upon  the  public,  may 
without  objection  be  left  to  some  outside  public  author- 
ity, the  work  assigned  to  the  Council  of  Supervision, 
such  as  every  co-operative  bank  ought  to  have,  may  well 
at  the  same  time  embrace  the  function  of  audit.  In 
rural  credit  banks  the  Council  may  without  danger  be 
left  to  carry  out  such  audit  itself,  unskilled  as  its  mem- 
bers may  in  general  be  taken  to  be.  The  figures  are 
likely  to  be  few  and  the  transactions  simple.  However 
in  a  bank  with  an  active  business  —  more  especially  if 
such  business  be  varied  — the  Council  had  much  the 
best  appoint  a  skilled  accountant  to  carry  it  out  in  its 
place  and  under  its  authority.  Co-operators  have 
rightly  learnt  to  value  skilled  accountancy.  The  Brit- 
ish "  Stores  "  will  now  have  none  other,  simple  as  store 
bookkeeping  is,  and  well  trained  as  are  in  general  those 
who  deal  with  it.  In  co-operative  banking  more  than 
thirty  years  ago  Schulze-Delitzsch  insisted  upon  it  in 
his  own  bank,  threatening  to  resign  his  seat  on  the 
Council  if  his  request  were  not  complied  with. 

Apart  from  this,  Council  of  Supervision  inspection 
is  not  essentially  a  matter  for  a  skilled  accountant,  be- 
cause in  it  actuarial  points  do  not  come  into  account 
to  any  large  extent.  Its  object  is  to  ascertain,  in  the 
first  place,  whether  all  the  provisions  of  the  law,  and 
all  the  precepts  issued  by  the  society,  have  been  faith- 
fully observed;  next,  to  check  formal  points  of  admin- 


160  CO-OPERATIVE  CREDIT 

istration,  see  whether  all  formalities  required  have 
been  complied  with,  whether  sureties  have  in  every 
case  been  communicated  with  and  their  signatures  veri- 
fied, whether  the  right  emplojTuent  has  been  given  to 
the  loan,  whether  the  rules  with  regard  to  repayment 
have  been  observed  and,  in  the  last  place,  to  examine 
whether  the  Committee  which  deals  out  the  loans  has 
rightly  exercised  the  discretion  left  to  it,  not  lent  to 
the  wrong  persons,  or  for  questionable  purposes,  or  be- 
yond the  figTire  with  which  the  borrower  might  be 
trusted,  as  also  whether  it  has  properly  dealt  with  sur- 
plus funds  by  way  of  investment  or  deposit.  These, 
so  it  will  be  admitted,  are  important  points,  and  if  the 
Council  is  to  do  full  justice  to  them  it  will  be  under- 
stood that  it  ought  to  be  able  to  speak  with  sufficient 
authority,  for  which  reason  both  Schulze-Delitzsch  and 
Kaiffeisen  recommended  Councils  composed  of  a  larger 
number  of  members  than  the  Committees  which  they 
are  to  control.  It  need  not  be  added  that,  to  be  able 
to  carry  out  its  duties  satisfactorily,  the  Council  will 
want  to  have  free  access  to  all  accounts,  correspondence, 
cash  boxes,  vouchers  and  whatever  else  there  may  be 
belonging  to  the  bank.  It  acts  under  this  aspect  as  a 
Commission  of  Inquiry  on  behalf  of  the  members  gen- 
erally. Nor  yet  need  it  be  explained  that  there  is  noth- 
ing hostile  or  derogatory  to  the  Committee  in  the 
appointment  of  such  a  Council.  The  Committee  will 
want  keeping  under  control.  For  it  might  take  things 
too  easy.  We  see  in  sundry  rural  banks  of  Germany 
that  Committees,  being  given  too  free  a  hand,  grant 
annual  cash  credits  rather  than  inquire  into  the  object 


CONTROL  AND  AUDIT  161 

of  each  loan,  as  their  system  requires  that  they  should 
do,  and  that  they  do  this  avowedly  with  the  object  of 
.saving  themselves  trouble.  But,  on  the  other  hand, 
without  a  Council  to  uphold  the  rules  of  the  bank 
against  great  and  small,  without  respect  of  persons,  the 
Committee  might  often  feel  tempted,  under  an  appli- 
cant's importunity  or  blandishments,  to  stretch  a  point 
in  his  favour  —  it  may  be  from  pure  good  nature  —  to 
the  detriment  of  the  bank.  The  present  leader  of  the 
Schulze-Delitzsch  Union  has  more  than  once,  when 
things  had  gone  wrong  with  a  bank,  and  inquiry  had 
revealed  the  cause,  found  himself  driven  to  declaim 
against  that  "  infatuated  confidence "  ( Vertrauens- 
dusel),  which  has  prompted  risky  credits.  It  will  be 
much  easier  for  the  Committee  to  say  "  No,"  when 
there  is  a  Council  at  its  back  to  keep  it  in  order. 

That  is  all  plain  sailing  enough.  And  although  new 
disciples  of  co-operative  banking  may  boggle  over  it 
when  it  comes  to  the  appointment  of  a  Council,  it  may 
be  taken  that  on  the  point  of  control  all  the  expert 
world  is  agreed. 

However,  there  is  something  further  desirable,  if  not 
indeed  positively  wanted.  It  may  be  well  to  recall 
once  more  to  mind  that  in  co-operative  banking  the 
administrators  that  we  have  to  deal  with  are  for  the 
most  part  mere  amateur  bankers,  little  skilled  in  the 
technical  details  of  the  business  and  without  much  ex- 
perience. Their  experience  and  knowledge  may  be 
good  so  far  as  they  go  —  indeed  better  adapted  for  the 
particular  business  in  hand  than  the  wider-ranged  skill 
of  trained  bankers.     But  it  will  only  go  a  certain  way. 


162  CO-OPERATIVE  CREDIT 

And,  be  co-operative  banking  as  simple  as  it  pleases, 
at  one  time  or  other  questions  of  commercial  banking 
are  sure  to  arise  in  it,  which  will  want  to  be  dealt  with 
on  commercial  lines.  In  the  larger  banks  of  the 
Schulze-Delitzsch  and  Luzzatti  types  there  will  be 
found  among  the  Committeemen  {vorstand)  as  able 
bankers  as  are  to  be  met  with  anywhere.  But  these 
are  just  the  men  who,  by  reason  of  their  ofBce,  want 
to  be  controlled.  And  in  the  Councils  there  will  be 
for  the  most  part  only  amateurs. 

Therefore,  ever  since,  as  long  ago  as  in  18Y8, 
Schulze  —  who  throughout  his  life  was  the  most  re- 
sourceful originator  of  new  ideas  in  his  special  branch 
of  work  —  suggested  a  superior  and  more  expert  kind 
of  control  to  be  carried  out  in  every  bank  once  in  three 
years  —  such  as  his  union  actually  adopted  as  a  com- 
pulsory rule  in  1881,  to  enforce  it  further  in  1887 
(while  at  the  same  time  reducing  the  period  from  three 
years  to  two).  The  most  active  minds  among  states- 
men and  bankers  have  since  then  readily  espoused  that 
new  proposition,  which  the  German  Parliament  em- 
bodied in  its  co-operative  law  as  early  as  in  1889,  when 
passing  a  revised  Co-operative  Act,  and  the  Austrian  in 
1903.  There  can  be  no  doubt  that  Schulze's  idea  was 
an  excellent  one  and  that  its  application  has  wTought 
unspeakable  good,  making  co-operative  banking  safer 
—  and  to  that  extent  cheaper  —  and  raising  co-opera- 
tive banks  which  accept  it  to  a  higher  and  more  uni- 
form level. 

Among  rural  banks,  with  their  humble  pretensions, 
the  same  idea  came  to  be  generated  and  matured  in  a 


CONTROL  AND  AUDIT  163 

different  way.  Kaiffeisen  found  —  just  as  Indian 
Eegistrars  find  in  the  present  day  and  Irish  organisers 
in  Ireland  —  that  the  little  committees  and  councils 
were  in  many  cases  not  capable  of  keeping  accounts 
and  exercising  their  other  functions  in  the  most  correct 
way.  Such  state  of  things  really  continues,  in  a  mod- 
erated shape,  to  the  present  day.  And  at  the  present 
time  there  is,  in  the  rural  co-operative  banking  move- 
ment in  Germany,  no  more  useful  institution  than  that 
which  has,  as  I  believe,  my  friend  Privy  Councillor 
Havenstein  of  Bonn  for  its  originator,  namely,  a  spe- 
cial department  of  his  particular  union  (the  Imperial 
Union),  which  undertakes  to  draw  up  balance  sheets 
annually  for  rural  credit  banks  —  not  as  an  enduring 
service,  but  simply  as  a  temporary  help  or  schooling, 
to  teach  Committees  and  Councils  to  do  such  work  for 
themselves.  There  is  no  supervision  in  this,  merely 
the  putting  of  balance  sheets  into  proper  shape.  Eaif- 
feisen  had,  of  course,  on  the  same  ground,  the  same 
difficulty  to  contend  with.  Balance  sheets  were  drawn 
all  awry.  So  he  directed  the  balance  sheets  to  be  sent 
up  to  headquarters  every  year,  accompanied  by  an- 
swers to  stereotyped  questions  put  by  the  central  office, 
to  be  there  revised  and  set  right.  And  out  of  such 
material,  often  supplemented  by  additional  question- 
ings, the  headquarters  evolved  correct  bookkeeping. 
This  practice  naturally  led  to  further  and  further  in- 
quiry into  facts,  and  of  itself  developed  into  inspection 
carried  out  by  a  regular  staff  of  travelling  inspectors, 
selected  for  their  fitness,  without  prejudice  to  the  send- 
ing up,  as  of  old,  the  balance  sheets,  which  now  pass 


164.  CO-OPERATIVE  CREDIT 

through  two  examinations,  first  at  the  centre  of  the  sec- 
tion, and  after  that  at  the  headquarters  of  all,  so  that 
certainly  no  labour  is  spared  in  the  matter.  What  we 
are,  however,  here  specifically  concerned  with  is,  not 
the  preparation  of  balance  sheets,  valuable  help  as  it  is, 
but  the  inspection  of  the  bank's  doings  by  the  travelling 
inspector,  who  reports  up  to  headquarters. 

M.  Luzzatti  took  up  the  idea  of  general  inspection, 
in  Italy,  on  Schulze's  lines,  at  once,  when  he  was  made 
aware  of  it,  in  1888,  and  again  in  1895.  The  large 
Italian  People's  Banks,  however,  apprehending  inter- 
ference, resisted  the  proposal,  just  as  they  —  really  as 
a  matter  of  trade-greed  —  resisted  the  same  leader's 
proposal  to  create  a  central  bank.  The  Italian  Gov- 
ernment is,  however,  now  busy  with  a  scheme  for  in- 
troducing inspection,  shaped  generally  on  the  model  of 
that  in  force  in  Germany,  and  making  it  compulsory. 
And  there  can  be  no  doubt  that  other  Governments  will 
follow  its  example. 

In  truth,  the  idea  of  obligatory  inspection  by  a 
higher  authority  is  now  everywhere  approved.  The 
difficulty  is,  in  the  absence  of  sufficient  knowledge  of 
the  excellent  results  obtained  in  Germany,  to  get  people 
to  agree  respecting  the  shape  which  such  inspection  is 
to  take.  Government  men,  as  a  matter  of  course, 
everywhere  claim  the  office  as  a  matter  of  right  for 
men  of  their  cloth,  whom  they  suppose  to  be  endowed 
with  a  monopoly  of  fitness.  Only  in  England  the 
Board  of  Agriculture,  conscious  possibly  of  its  own  in- 
sufficiency, pleads  for  inspection  by  bankers.  The 
requisite  audit  is  in  the  United  Kingdom  of  course 


CONTROL  AND  AUDIT  165 

prescribed  by  the  two  Acts  which  severally  govern  the 
matter.  But,  iu  its  endeavour  to  promote  the  forma- 
tion of  "  agricultural  banks,"  the  said  Board  has  ob- 
tained a  promise  from  a  number  of  joint  stock  banks  — 
which  are  also  willing  to  open  credits  and  to  receive 
deposits  —  to  send  skilled  managers  of  theirs,  gratui- 
tously, as  a  public  service,  to  inspect  rural  banks  and 
advise  their  managers.  Now  these  banks  might  as  well 
send  artillery  officers  to  instruct  riflemen  in  rifle  prac- 
tice, or  a  chique  cento  architect  to  advise  a  country 
carpenter  how  to  set  up  a  pigstye.  The  two  classes  of 
banking  are  essentially  different  and  call  for  wholly  dif- 
ferent practice  and  precautions.  So  essentially  differ- 
ent are  joint  stock  business  and  co-operative  business, 
that  in  the  United  Kingdom,  where  Co-operation  took 
its  first  start  on  a  large  scale.  Parliament  has  expressly 
sanctioned  the  entrusting  even  of  ordinary  audit  in  co- 
operative societies  to  a  distinct  class  of  accountants, 
skilled  and  passed  as  accountants,  but  having  made  a 
specialty  of  co-operative  business.  If  that  is  so  in 
mere  accountancy,  how  much  more  is  it  bound  to  be  the 
case  in  the  matter  of  inspection  for  the  general  conduct 
of  this  particular  business.  The  bankers  volunteering 
advice  might  conceivably  give  such  to  a  central  bank, 
which  meets  with  them  on  common  ground  and  has,  as 
part  of  its  duties,  the  same  class  of  business  to  deal 
with.  In  a  local  bank  their  "  high  finance "  expert 
knowledge  must  be  thrown  away.  Co-operation  will 
have  to  train  its  own  advisers  and  inspectors,  as  it  does, 
systematically  and  with  good  results,  in  Germany.  In 
that  country  there  are  special  courses  of  training  in- 


166  CO-OPERATIVE  CREDIT 

stituted  for  co-operative  inspectors,  with  examinations 
and  certificates  of  fitness  at  the  end. 

Practically  the  same  proposition  is  favoured  in  a 
modified  shape  in  some  other  quarters.  What  is  there 
asked  for  is  that  central  banks  should  be  charged  with 
the  ofiice  of  inspection  —  and,  what  grows  out  of  this, 
of  expertly  advising  —  local  banks.  That  is  much 
advocated  in  India,  where  there  are  some  "  central 
banks,"  but  as  yet  no  "  unions,"  so  that  there  is  no  one 
to  entrust  with  inspection  except  the  official  Registrars, 
who  are  finding  the  burden  growing  too  heavy  for  their 
limited  powers  —  unless  it  be  taken  charge  of  by  cen- 
tral banks.  And  such  is  the  course  actually  practised 
in  Roumania  where,  under  a  faulty,  Government-rid- 
den system,  the  central  bank  is  the  real  moving  organ 
in  what  "  co-operative  "  banking  there  is  —  not  a  little 
of  it,  but  that  rather  of  the  distributing  than  the  up- 
building order.  Xow  under  such  arrangement  we  do 
not  even  make  sure  that  we  shall  have  really  good 
expert  banking  knowledge  to  assist  us  in  the  work. 
For  the  central  bank  inspectors  may  be  as  mere  ama- 
teur bankers  as  are  the  local  bank  managers.  There  is 
likely,  on  the  other  hand,  to  be  among  them  some 
knowledge  of  co-operation,  which  joint  stock  bankers 
cannot  be  expected  to  possess.  But  the  interest  en- 
listed will  naturally  be  that  of  the  creditor,  or  potential 
creditor,  not  that  of  the  disinterested  well-wisher  to  the 
bank  or  the  interested  shareholder  or  depositor.  So 
far  as  the  central  bank  makes  advances,  it  has  as  a 
matter  of  course  a  creditor's  right  to  examine  accounts 
and  whatever  else  might  affect  its  position,  in  order  to 


CONTROL  AND  AUDIT  167 

ascertain  whether  its  eventual  claim  is  absolutely  safe- 
guarded. That  may  be  settled  between  it  and  its  bor- 
rower as  a  simple  matter  of  contract.  Its  officers  may, 
beyond  that,  give  paternal  advice  —  and  in  the  absence 
of  other  inspection  it  is  quite  right  that  their  willing- 
ness to  do  this  should  be  utilised.  But  the  impelling 
motive  which  ensures  really  good  inspection,  the  full 
identity  of  interest,  will  still  be  wanting.  In  the 
recent  inquiry  into  German  bank  crashes  it  was  found 
that  it  was  an  officer  of  the  central  bank  who,  out  of 
solicitude  for  his  own  institution,  had  egged  on  local 
banks  to  their  ruin  assuring  them  that  the  (already  in- 
solvent) central  bank  was  good  for  all  its  liabilities. 
And  one  does  not  see  what  power  either  the  central  bank 
inspector  or  the  joint  stock  bank  inspector  could  exer- 
cise to  make  his  monitions  obeyed.  He  may  advise, 
but  he  cannot  enforce.  His  only  possible  threat  will 
be  that  of  withholding  further  advances. 

The  worst  method  of  all  is  that  of  entrusting  inspec- 
tion to  the  Government,  by  means  of  inspectors  to  be 
appointed  by  it.  There  is  a  great  belief  in  this,  not- 
withstanding, in  some  quarters.  The  prospect  of 
cheapness,  which  Governments  know  how  to  make  play 
with,  has  something  to  do  with  this.  But,  apart  from 
that,  what  inspection  —  so  it  is  asked  —  could  possibly 
be  more  thorough  and  searching,  and  also  more  skilled 
and  effective  than  that  carried  out  under  the  authority 
of  the  Government  of  the  country  with  its  inexhausti- 
ble resources  of  compulsion  ?  Such  opinion  is  much 
favoured  by  political  authorities  on  the  European  Con- 
tinent, but  fortunately  only  little  practised  because  the 


168  CO-OPERATIVE  CREDIT 

Governments,  coming  later  into  the  field  than  voluntary 
organisations,  have  not  found  convenient  means  of  dis- 
possessing the  latter,  who  were  already  in  possession. 
All  that  they  have  practically  been  able  to  achieve  — 
except  in  such  countries  as  Russia,  Eoumania  and  the 
like  —  has  been,  quite  consistently  with  their  imposi- 
tion of  compulsory  inspection,  to  offer  the  services  of 
Government  inspectors  as  an  alternative  to  union  in- 
spection, a  last  resource  in  the  event  of  the  failure 
of  others.  However,  evidently  they  desire  their  own 
method  to  be  given  the  preference,  because  they  have 
—  once  more  at  the  general  taxpayer's  expense  —  fixed 
only  nominal  charges  for  its  execution.  At  the  outset 
the  charge  for  inspection,  such  as  a  union  can  offer 
only  on  self-supporting  lines,  weighs  rather  heavily  on 
small  banks'  resources.  In  Ireland,  to  state  one  in- 
stance, it  is  felt  as  a  hindrance  —  and  that  is  one  rea- 
son why  Irish  rural  co-operators,  operating  under 
peculiar  circumstances  —  in  backward  country  sec- 
tions, where  population  is  sparse  and  poor  —  wish  to  be 
allowed  to  couple  trading,  which  is  known  to  be  re- 
munerative, with  petty  banking,  so  as  to  have  a  margin 
of  income  available.  On  the  face  of  it,  however,  it 
must  be  apparent  that  inspection  by  Government  of- 
ficers is  of  no  value  whatever  —  in  M.  Luzzatti's  words, 
spoken  at  a  great  Italian  Congress,  "  worse  than  no 
inspection  at  all."  The  Government  has  every  facility 
for  ascertaining  established  facts  and  compelling  com- 
pliance with  formal,  positive  precepts.  It  can  go  no 
further.  It  can  send  its  inspectors  to  inspect  factories, 
mines,  schools,  prisons,  and  punish  defaulters  by  fines 


CONTROL  AND  AUDIT  169 

or,  it  may  be,  by  withdrawal  of  licenses.  It  can,  in 
co-operative  banks,  compel  and  carry  out  an  effective 
audit  and  verification  of  accounts.  And  to  all  this  it 
is  entirely  welcome.  Admettons  le  controle,  repoussons 
I'intrusion,  so  says  in  this  connection  M.  Eugene  Kos- 
tand,  for  a  long  time  the  leader  of  the  free  co-operative 
credit  movement  in  France.  But  it  cannot  penetrate 
into  the  particulars  of  a  business  —  more  particularly 
of  a  business  so  absolutely  dependent  upon  individual 
title  and  changing  circumstances  as  credit  banking. 
The  Government  inspector  might  truthfully  report 
everything  to  be  according  to  rule  — so  far  as  his  in- 
structions go  —  in  a  credit  society  which  was  never- 
theless on  the  brink  of  insolvency. 

These  things  are  not  to  be  settled  by  rule  of  thumb. 
And  one  point,  which  advocates  of  Government  inspec- 
tion fail  to  bear  in  mind,  is  that  Government  inspection 
purporting  to  amount  to  a  guarantee  —  that  is  the 
ground  upon  which  it  is  recommended  —  implies  as  a 
necessary  corollary  Government  liability  for  default. 
This  is  no  chimera.  There  have  actually  been  cases  in 
which  the  question  of  liability  was  raised  at  law.  The 
Union,  against  which  the  claim  was  raised,  came  off 
scot  free,  because  it  had  given  no  guarantee;  it  had 
only  to  the  best  of  its  power  supplied  a  skilled  inspec- 
tor.    A  Government  would  not  have  escaped  so  easily. 

But  what  is  really  worse  is  that  a  Government  in- 
spector would  have  neither  the  requisite  qualification 
and  interest  to  make  his  inspection  useful,  nor  would 
he  or  his  superiors  have  the  means  for  enforcing  re- 
medial action  where  such  might  be  judged  necessary. 


170  CO-OPERATIVE  CREDIT 

What  is  he  to  do  in  case  of  non-compliance  with  his 
behests  ?  He  may  fine  the  bank  —  which  will  impov- 
erish and  may  ruin  it.  Or  he  may  have  its  registra- 
tion cancelled  —  which  will  leave  the  district  without 
a  bank.  He  is  not  likely  to  possess  the  necessary  quali- 
fications because,  co-operative  banking  being  a  practi- 
cal matter,  expertness  in  it  can  be  acquired  only  by 
practical  training,  handling  of  bank  money  and  dealing 
with  cases.  And  without  the  expertness  of  a  practical 
man,  what  is  inspection  worth  ?  German  unions  ex- 
plicitly bind  themselves  only  to  employ  thoroughly 
skilled  and  fully  competent  inspectors.  And  a  Gov- 
ernment inspector  cannot  possess  the  requisite  interest, 
because  the  fate  of  any  of  the  banks  does  not  matter  to 
him  a  red  cent.  He  goes  there  to  do  his  duty  —  by 
rote.  He  goes  through  his  prescribed  programme  of 
inquiry  and  he  goes  away  again.  If  the  bank  comes 
to  grief  —  what  does  that  matter  to  him  ?  He  will 
have  done  his  part;  he  will  still  remain  Government 
inspector  and  be  not  one  penny  the  worse.  His  in- 
spection is  likely  to  become  either  a  mere  form  per- 
functorily gone  through,  which  can  do  the  bank  no 
good,  rather  harm;  or  else  an  exercise  of  arbitrary 
power,  which  will  irritate  the  members,  and  dispose 
them  all  the  less  to  comply  with  his  recommendations. 
They  cannot  indeed  under  any  circumstances  repose 
real  confidence  in  him.  A  trusted  parent  can  do  more 
with  a  child  than  the  best  armed  and  most  resourceful 
policeman  in  the  world. 

The  proper  authority  to  carry  out  inspection  in  a 
co-operative  bank  is  without  question  a  union  of  co- 


CONTROL  AND  AUDIT  171 

operative  banks  of  the  same  order.  Such  union  can 
make  sure  that  it  will  have  competent  officers  to  do  the 
work  under  responsibility  to  itself,  who  appoints  them, 
that  is,  to  experienced  experts.  Such  inspector  need 
not  stand  upon  etiquette  with  the  local  banks.  He  can 
put  inconvenient  questions  and  examine  minutely  with- 
out giving  reasonable  umbrage.  The  Union's  interest 
is  one  only,  and  that  is,  to  keep  its  own  banks  fully 
up  to  the  mark,  to  safeguard  members  and  creditors 
against  loss.  Itself  would  be  prejudiced  if  any  of 
them  were  to  fall  below  or  be  ruined  by  mismanage- 
ment. And  what  in  this  matter  is  the  Union's  interest 
is  also  the  bank's  own  interest.  Therefore  the  Union 
need  not  in  any  way  be  squeamish  about  questioning 
its  member-banks.  The  interrogatories  actually  put  to 
such  in  Germany  would  astonish  American  readers. 
They  are  so  minute.  They  go  into  every  detail.  The 
Germans  are  adept  schedule  makers.  And  here,  in 
their  schedule  of  questions,  is  the  result  of  more  than 
forty-five  years  of  careful  inquiry!  Every  possible 
danger  point  is  taken  into  consideration.  The  Union 
is  also  not  sparing  in  its  disciplinary  methods.  Its  of- 
ficers make  their  examination  in  the  bank's  own  inter- 
est, with  professional  skill  and  experience  as  well  as 
with  authority  at  their  back.  Their  inquiry  is  search- 
ing. It  is  carried  out  according  to  rule  in  the  presence 
of  the  governing  bodies  of  the  bank,  or  of  their  repre- 
sentatives. Its  result  is  embodied  in  a  report  and  read 
out  to  those  bodies  or  to  members  generally.  That  re- 
port also  goes  to  the  District  Union  and  to  the  general 
Union,  where  as  a  rule  it  is  kept  private.     However,  if 


172  CO-OPERATIVE  CREDIT 

there  should  be  faults  really  imperilling  the  bank,  the 
report  may  be  discussed  in  the  common  interest  at  the 
District  or  the  General  Congress.  In  extreme  cases 
the  bank  may  be  turned  out  of  the  Union.  If  to  have 
its  shortcomings  publicly  discussed  is  not  pleasant,  to 
be  expelled  may  seriously  damage  its  position.  In 
spite  of  all  this,  not  only  is  membership  in  a  Union 
felt  as  a  gain,  but  the  Union  inspector  is  welcomed  in 
the  banks.  The  members  of  such  know  that  he  is  doing 
them  a  real  service,  that  there  is  an  object  in  all  the 
interrogatories  put  to  them,  all  the  inquiries  made  into 
their  business.  He  comes  as  a  friend  and  as  a  skilled 
teacher.  He  is  under  instructions  to  assist  them  —  at 
the  inspection  and  otherwise,  say,  by  addresses  —  with 
his  advice.  If  he  should  find  fault,  he  explains  his 
Why  and  Wherefore  for  doing  so  and  argues  the  case 
understandingly  with  the  members. 

There  can  be  no  question  that  inspection  by  the 
Union  is  a  real  benefit  to  a  bank ;  and  in  Europe  power 
to  institute  it  is  reckoned  a  privilege  under  the  law. 
It  is  —  quite  rightly  —  conceded  only  to  Unions  which 
have  given  proof  of  their  worthiness  of  it  and  made 
good  their  position.  To  state  one  instance,  the  Union 
of  Polish  co-operative  banks  in  the  eastern  provinces 
of  Prussia,  under  a  benign  Minister  not  obsessed  for 
the  moment  with  Antipolonism,  obtained  that  right 
with  good  cause.  They  value  it  and  employ  it  well. 
Therefore  it  could  not  decently  be  withdra\Mi,  as  many 
antipolonist  politicians  would  wish.  There  are  in 
truth  no  better  conducted  co-operative  banks  on  the 
European  Continent. 


CONTROL  AND  AUDIT  173 

However,  the  law,  in  spite  of  the  proved  utility  of 
Union  inspection,  very  properly  makes  provision  also 
for  the  case  of  banks  which  do  not  provide  for  it. 
Such  banks  —  there  are  some,  and  quite  good  ones 
among  them,  which  do  not  belong  to  any  union,  nor 
even  to  an  ''  inspection  union "  (Revisionsverhand) 
such  as  are  here  and  there  formed  for  inspection  only 
—  come  under  the  same  rule  of  compulsion;  but  no 
union  inspector  being  available  in  their  case,  they  have 
to  submit  to  inspection  by  a  Government  officer  ap- 
pointed by  the  law  court  of  their  district.  They  do  not 
like  it;  and  it  is  to  be  feared  that  they  are  not  much 
the  better  for  it. 

A  law  similar  to  the  German,  making  inspection 
compulsory  but  permitting  inspection  by  recognized 
unions,  and  placing  inspection  by  Government  officers 
only  in  reserve  (in  respect  of  societies  which  have  no 
union),  is,  so  I  have  reason  to  believe,  in  preparation 
for  Italy.  And  in  my  opinion  there  can  be  no  better 
solution  of  the  question. 

This  subject  cannot  well  be  finally  dismissed  without 
just  a  few  words  upon  the  nature  of  the  inspection  here 
recommended. 

That  inspection,  so  it  may  be  explained,  was  never 
intended  to  replace  checking  by  the  local  Council  of 
Supervision,  which  appears  so  unnecessary  to  not  a  few 
novices,  but  only  to  supplement  and,  where  necessary, 
to  enforce  it  by  order  of  the  higher  authority.  To  un- 
dertake such  local  inquiry  the  inspectors  of  the  Union 
obviously  would  not  be  the  proper  persons.  For  that 
is  a  question  of  knowledge  of  the  local  people,  of  their 


17i  CO-OPERATIVE  CREDIT 

character  and  their  circumstances.  Has  "  Brown " 
been  trusted  to  excess  ?  Is  "  Jones's  "  the  right  case  ? 
And  so  on.  The  Union  inspector,  coming  from  a  dis- 
tance, could  never  answer  these  questions.  Council 
control  must  always  and  under  all  circumstances  re- 
main the  pillar  of  safeguards  in  co-operative  banking. 
However,  the  Union  inspector  is  acquainted  with 
things  of  great  importance,  upon  which  members  of 
the  Council  are  not,  or  else  at  any  rate  are  often  enough 
not  sufficiently,  informed.  He  has  passed  through  ap- 
propriate schooling,  he  has  been  examined  and  found 
eligible;  doing  nothing  but  inspecting  all  the  year 
round  he  has  been  brought  in  touch  with  many  scores 
—  through  his  consultations  with  his  colleagues,  at 
their  regular  meetings,  with  thousands  —  of  co-opera- 
tive bankers  and  by  his  inspections  and  inquiries  he 
has  become  acquainted  with  very  varied  experiences; 
he  is  informed  upon  every  point  which  is  likely  to 
arise  in  co-operative  banking;  at  the  same  time  he  is 
kept  in  touch  with  larger  banking ;  he  has  all  the  points 
of  pertinent  law  and  of  co-operative  banking  at  his 
fingers'  ends.  Although  he  does  not  know  about 
"  Jones  "  and  "  Brown,"  he  is  full  of  banking  knowl- 
edge. He  knows  what  a  bank  must  do  to  keep  its 
resources  sufficiently  liquid  —  a  point  to  which  very 
properly  steadily  gi'owing  importance  is  attached;  he 
knows  how  much  borrowed  money  a  bank  may,  under 
varying  conditions,  take  up  in  proportion  to  the  capital 
of  its  own ;  he  knows  all  the  legal  precepts  to  be  ob- 
served ;  he  has  a  keen  eye  for  any  irregularities  from 
a  banking  point  of  view.     And  his  interest  is,  as  al- 


CONTROL  AND  AUDIT  175 

ready  observed,  identical  with  that  of  the  bank  in- 
spected. His  union,  which  pays  him,  and  to  which  he 
is  answerable,  is  made  up  of  local  banks.  Its  foremost 
interest  is  that  those  banks  should  be  thoroughly  safe 
and  merit  as  well  as  command  a  high  reputation. 
Therefore  he  will  do  all  in  his  power  to  keep  them  up 
to  the  mark.  And,  generally  speaking,  their  members 
and  Committees  are  thankful  for  his  advice  and  show 
themselves  anxious  to  benefit  by  it. 

Here  is  the  coping  stone  to  that  structure  of  control 
and  checking  which  constitutes  the  framework  of  the 
co-operative  credit  fabric.  Step  by  step  inspection 
rises,  from  point  to  point  —  from  purely  local  and  per- 
sonal considerations  to  the  highest  questions  of  techni- 
cal banking  practice  which  occur  in  it.  And  in  the 
varied  applications  of  inspection,  in  such  proving  of 
all  points,  lies  the  safety  of  the  bank.  That  is  the  ef- 
fective substitute  which  Co-operation  can  provide  for 
the  lacking  funds  and  banking  skill  of  those  who,  on 
the  lowest  plane,  administer  the  banking  organisations. 
It  has  given  ample  proof  of  its  value;  and  it  cannot 
be  contended  that  it  is  not  applicable  everyvi^here. 


CHAPTER  VII 

VABIANTS    AND    DANGEKPOINTS 

It  was  scarcely  to  be  expected  that  a  movement  so 
largely  dependent  upon  local  conditions,  habits  and 
temperaments  as  is  that  for  the  dispensing  of  co-op- 
erative credit  should  long  continue  in  its  wider  appli- 
cation on  the  same  narrow  lines  that  were  prescribed 
by  its  first  originators.  Xeither  was  it  to  be  desired. 
In  matters  of  economics  principle  is  immutable. 
Credit,  wherever  practised,  must  be  based  upon  secur- 
ity. However,  principle  will,  according  to  varying 
environments,  accommodate  itself  to  a  variety  of 
shapes.  And,  if  you  would  cover  much  ground,  you 
will  needs  have  to  apply  it  in  such  way  as  to  make  it 
suit  a  variety  of  different  cases.  Circumstances  differ 
in  various  countries,  not  rarely  very  considerably  even 
in  the  very  same  country.  Habits  differ.  The  Ger- 
mans and  Austrians  take  a  pride  in  their  practice  of 
unlimited  liability,  which  the  Italians  hold  in  abhor- 
rence and  judged  to  be  the  very  first  thing  that  had  to 
be  got  rid  of.  Human  character  and  human  prefer- 
ences differ.     Laws  differ. 

ISText,  in  this  imperfect  world  of  ours,  it  is  impossi- 
ble to  devise  any  one  scheme  which  is  not  —  it  may 
be  by  reason  of  its  very  excellence  —  liable  to  abuse. 
Carry  its  leading  feature,  which  is  its  glory,  to  excess, 

176 


VARIANTS  AND  DANGERPOINTS  177 

and  you  have  a  caricature.  Businesslike  organisation 
may  result  in  profit-seeking  commercialism  and  the 
selfish  domination  of  capital.  Philanthropic  idealism, 
on  the  other  hand,  may  destroy  businesslike  equilib- 
rium, or  else  concentrate  power  in  one  or  a  very  few 
hands.  The  former  result  would  make  the  scheme  un- 
workable, the  latter  would  wholly  spoil  its  character. 
There  is  nothing  surprising  in  the  fact  that  the  danger 
of  such  denaturations  should  have  forced  itself  upon 
the  attention  of  men  endowed  with  critical  minds  and 
that  such  men  should  have  made  it  their  aim  to 
counteract  the  dangerous  tendencies  and  guard  against 
deterioration  by  additional  safeguards.  Nothing  could 
be  better  than  if  they  should  succeed.  However,  while 
the  world  remains  the  world,  the  chances  are  that  the 
studied  avoidance  of  one  rock  will  only  land  the  vessel 
upon  another,  possibly  more  dangerous. 

In  the  last  place,  there  are  the  powers  that  be  to  be 
reckoned  with,  no  matter  whether  they  handle  the 
sceptre  or  the  censer,  whether  they  preside  over  broad 
acres  or  deck  their  head  with  the  Phrygian  cap.  The 
better  a  thing  succeeds,  the  more  persons  will  it  attract 
within  its  influence,  whose  support  may  be  coveted  for 
other  purposes  than  that  directly  contemplated  and 
whom  it  is  accordingly  policy  to  bribe  with  benefits. 

The  last-named  factor  making  for  degeneration  one 
would  wish  to  see  altogether  eliminated  from  the  bal- 
ancing play  of  forces.  Politics  and  denominational 
strife  have  no  proper  place  in  Co-operation  and  can 
only  serve  to  denaturate  it.  They  have,  nevertheless, 
proved  in  fact  very  powerful  agents. 


178  CO-OPERATIVE  CREDIT 

As  between  the  two  systems  reviewed,  Change  has 
proved  by  far  the  most  active  on  the  Eaiffeisen  side,  as 
is  perfectly  natural,  as  we  shall  see.  The  system  hav- 
ing Schulze-Delitzsch  and  M.  Luzzatti  for  its  protago- 
nists has  suffered  very  much  less.  And  for  good 
reasons.  There  is  a  oneness  about  it  which  makes  it 
self-contained  and  self-explanatory.  It  is  all  econom- 
ics. It  has  no  other  aims  which  affect  it.  And,  there- 
fore, barring  deliberate  corruption,  it  is  bound  to 
remain  essentially  unchanged.  Xot  even  Eussian  of- 
ficialism, operating  with  its  big  purse  and  its  large 
army  of  submissive  public  officers,  has  succeeded  in 
damaging  it  more  than  by  putting  it  into  Government 
garb  and  forcing  some  public  money  upon  it.  Look 
where  you  will  —  in  the  German  and  Austrian  Kredit- 
vereine,  in  the  Italian  banclie  popolari,  in  the  Swiss 
Schweizerische  Yolhsharik,  in  the  struggling  French 
hanques  populaires,  even  in  Lutfi  Bey's  few  banks 
newly  established  on  the  banks  of  the  Nile,  you  see 
still  everywhere  essentially  the  same  system.  The  non- 
German  throwing  off  unlimited  liability  has  not  altered 
the  character  of  the  institution.  The  worst  damage 
done  to  it  from  without  is  that  for  which  it  has  to  thank 
the  Prussian  Government  and  its  imitative  sister  Gov- 
ernments in  Germany,  namely,  the  organisation  of  it 
in  detached  compartments  for  distinct  trades,  each  by 
itself,  which  runs  directly  counter  to  common  sense  and 
was  bound  to  lead  to  unsratisfactory  results.  Dr. 
Hugenberg,  who  for  a  long  time  was  at  the  head  of 
the  Government  department  dealing  with  these  par- 
ticular matters,  has,  in  a  book  recently  published,  re- 


VARIANTS  AND  DANGERPOINTS  179 

vealed  the  motive  for  tbis.'^  It  was  political.  All 
these  sixtj-five  years  has  the  Govermnent  at  Berlin 
steadily  obstructed  the  progress  of  Schulze-Delitzsch's 
Co-operation,  simply  because  it  teaches  self-reliance 
and  independence,  rejecting  the  Government's  bounty. 
This  was  considered  heresy.  Also  Schulze  and  his 
friends  were  for  the  most  part  Liberals  and  partisans 
of  German  unity,  at  a  time  when  that  was  deemed 
heresy  in  Berlin.  Accordingly  they  were  tabooed,  and 
when  it  came  to  passing  the  first  German  Co-operative 
Act,  Schulze,  the  one  genuine  co-operator  in  Parlia- 
ment, was  deliberately  excluded  from  the  Committee 
entrusted  with  its  elaboration.  Nevertheless  he  suc- 
ceeded brilliantly  in  his  work.  Then,  as  Dr.  Hugen- 
berg  has  put  it,  "  to  get  the  tradesmen  " —  the  class  for 
which  Schulze  had  more  particularly  devised  his 
scheme,  "  away  from  Liberalism,"  the  Government  — 
always  eager  for  "  votes  " —  took  to  favouring  "  Trade 
Credit  Societies  " —  credit  societies,  that  is,  in  which 
membership  is  in  each  case  confined  to  one  trade  only. 
That  necessarily  did  away  with  all  the  wholesome 
"  balancing "  between  abundance  and  want.  But  ob- 
viously societies  so  formed  must  needs  remain  depend- 
ent upon  the  institution  which  nourishes  them  with 
cash,  that  is,  in  this  case,  the  Government.  And  that 
was  just  what  was  desired.  The  Hungarian  Govern- 
ment, when  deciding  to  take  the  trading  classes  under 
its  wing,  acted  far  more  circumspectly;  for,  although 
favouring  single-trade  societies  for  all  purposes  except 

1  "  Bank-und  Kreditwirtschaft  des  deutschen  Mittelstandes, 
von  Dr.  A.  Hugenberg,  Geheimer  Finanzrat.  Munich,  Lehman. 
1906." 


180  CO-OPERATIVE  CREDIT 

that  of  credit,  which  is  quite  right  —  it  with  equal  pro- 
priety particularly  recommended  the  blending  of  trades 
in  one  society  for  purposes  of  credit.  The  result  has, 
as  observed,  in  Germany  proved  anything  but  satisfac- 
tory. The  societies  have  declared  themselves  not  at  all 
content  with  the  assis'ance  rendered  to  them  by  the 
State,  nor  with  the  clumsy  methods  forced  upon  them 
for  using  it  —  which  methods  were,  in  part,  borrowed 
from  the  oflBcial  credit  apparatus  contrived  for  farmers. 
One  or  two  trades  —  most  notably  butchers  and  bakers 
—  have  reaped  some  benefit ;  but  that  is  rather  because 
by  such  means  the  cheque  and  clearing  have  become 
available  for  them,  than  because  of  any  credit  allowed. 
Otherwise  things  have  not  gone  well,  and  Herr  Mager, 
a  responsible  officer  of  the  very  bank  which  dispenses 
State  credits,  has  publicly  expressed  his  preference  for 
independent  banking.  Dr.  Hugenberg  himself  has, 
likewise  publicly,  owned  to  the  opinion  that  the  "  Trade 
Credit  Societies "  would  do  better  were  they  now  to 
seek  admission  to  the  Schulze-Delitzsch  Union. 

Thus,  in  general,  on  its  own  side  Schulze-Delitzsch's 
system  remains  outwardly  intact.  All  the  same  it  has 
not  altogether  escaped  abuse  though  retaining  its  orig- 
inal form.  Experience  has  made  it  clear  that  the  com- 
mercial spirit  inspiring  it  may  be  carried  too  far. 
The  most  serious  dangerpoints  about  it  are  the  non- 
limitation  of  dividend  on  shares  and  a  desire  to  do 
"  business."  As  business  has  increased  —  beyond  any- 
thing that  could  have  been  foreseen  —  dividends  have 
grown  fat  and  "  dividend  hunting  "  has  become  a  not 
jincommon  practice  —  in  Italy  as  in  Germany.     What 


VARIANTS  AND  DANGERPOINTS  181 

wonder  that  in  some  cases  —  notable  cases  among  them 
—  professing  "  co-operators  "  have  turned  themselves 
into  profit-seeking  capitalists  and  their  co-operative  so- 
cieties into  —  essentially  or  else  quite  outspokenly  — 
joint  stock  concerns !  Also,  in  the  chase  for  "  busi- 
ness," unreasonably  large  credits  have  been  opened  to 
members  —  generally  to  members  of  the  governing  bod- 
ies. Or  else  the  cheap  credit  of  the  co-operative  bank 
has  been  taken  unfair  advantage  of  by  moneylenders, 
for  obtaining  from  them  cheap  money  wherevt^ith  to 
carry  on  on  a  larger  scale  their  usurious  trade.  That 
is  not  likely  to  occur  in  the  present  day,  either  in  Ger- 
many or  in  Italy.  For,  if  dividend  has  not  been  lim- 
ited by  rule,  it  has  become  so  generally  in  practice; 
also  excessive  credits  are  now  eyed  with  suspicion,  and 
there  will  be  few,  if  any,  money  lenders  found  in  the 
ranks  of  banking  co-operators.  But  the  moneylending 
business  is  believed  to  be  still  going  on  merrily  in 
Galicia  and  possibly  in  Hungary  —  in  both  countries 
only  in  the  professing  Schulze-Delitzsch  banks. 

Such  dangers  may  very  well  be  guarded  against  by 
careful  inspection  and  by  limitation  of  dividend  on 
shares  —  to  which  may  be  added  the  distinctly  co-op- 
erative practice  of  allowing  dividend  on  business  —  as 
in  Stores  —  of  which  the  meritorious  veteran  of  co-op- 
erative banking  in  Belgium,  M.  Alfred  Micha,  has 
made  himself  the  advocate,  and  which  has  already  come 
to  be  practised  in  several  co-operative  banks  in  Italy. 

All  such  progress  notwithstanding,  one  cannot  pre- 
tend that  danger  of  abuse  for  selfish  purposes  has 
passed  wholly  away,  or  that  it  is  peculiar  only  to  conti- 


182  CO-OPERATIVE  CREDIT 

nental  countries.  The  devil  of  covetousness  is  as  active 
in  the  Anglo-Saxon  soul  as  in  any  foreign  one.  In 
England  I  have  had  more  than  one  appeal  addressed 
to  me  to  organise  banks  for  people  who  were  interested 
in  the  sale  of  goods.  The  Credit  obtainable  at  one 
counter  was  to  tempt  borrowers  to  buy  goods  with  bor- 
rowed money  at  the  other.  Xow  this  would  have  been 
the  grossest  perversion  of  Co-operation.  But  who 
knows  whether  similar  proposals  may  not  be  put  for- 
ward in  the  land  of  "  the  almighty  dollar  "  ? 

The  Eaiffeisen  system  has  had  a  good  deal  more  to 
suflFer  from  innovations  and  supposed  "  improvements." 
The  reasons  for  this  are  not  far  to  seek.  To  begin 
with,  the  whole  structure  of  the  Eaiffeisen  society  is 
of  a  nature,  one  might  say  to  tempt  to  proposals  for 
supposed  emendation.  Simple  as  simple  can  be  under 
one  aspect,  under  another  the  system  is  distinctly  com- 
plex. Its  aim  and  object  is  not  purely  economic,  like 
Schulze's.  Economics  provide  for  it  an  instrument 
which  is  to  be  put  to  right  good  use.  But  its  principal 
aim  is  moral  and  social  upraising.  Accordingly  more 
principles  and  influences  come  into  play  than  in 
Schulze's  simple  thrift  and  credit  institution,  such  as 
give  to  people  with  "  ideas  "  more  handles  to  take  hold 
of  when  seeking  to  adapt  it  to  their  own  taste  and 
interest.  The  philanthropist  may  wish  to  alter  the 
system  a  little  here,  the  pure  economist  a  little  there. 
And  the  self-seeker  can,  if  he  chooses,  make  great  play 
with  Raiffeisen's  moral  aims,  which  may  be  twisted 
into  a  pretext  for  all  manner  of  cranky  aberrations. 
Simple  structure  as  regards  liability,  and  excellent  re- 


VARIANTS  AND  DANGERPOINTS  183 

suits  as  regards  provision  of  money  and  raising  of 
moral  tone,  have  made  it  a  pronounced  favourite  alike 
with  high  and  low,  with  governors  and  governed.  And 
the  more  popular  a  movement  is,  the  more  is  its  label 
sure  to  be  made  use  of  for  the  covering  of  contraband 
goods  which  are  not,  but  may  be  made  to  appear,  its 
own.  People  and  authorities  who  require  votes  or  in- 
fluence —  Church,  political  parties,  territorial  mag- 
nates —  are  not  likely  to  pass  by  so  tempting  a  weapon 
for  their  own  several  peculiar  warfare.  There  is  so 
much  for  which  this  system  may  be  taken  advantage 
of!  Designed  for  the  poor,  as  an  unobtrusive,  quiet 
instrument  of  improvement,  it  lends  itself  capitally  to 
the  country  magnate's  ambition  for  prestige  and  power, 
and  also  to  his  more  egotistical  craving  for  material 
gain  by  being  turned  into  a  weapon  for  "  agrarian  " 
warfare.  To  political  parties,  more  particularly  on 
the  Conservative  side,  it  offers  an  easy  hold  upon  a 
docile  and  leadable  population  with  votes.  And  to 
Church  politics  it  presents  itself  as  a  chosen  ally,  since 
it  in  any  case  pursues  similar  aims  and  holds  altar  and 
cassock  in  honour. 

As  it  happens,  it  is  easy  to  bend  into  an  altered 
shape  to  serve  one-sided  purposes.  The  procuring  of 
credit  without  providing  share  capital,  or  only  very 
little,  is  of  course  a  powerful  magnet.  On  the  other 
hand,  the  conditions  which  such  benefit  necessarily  im- 
poses, the  searching  inquiry,  the  strict  holding  of  the 
borrower  to  account,  and  so  on,  do  not  go  down  as  read- 
ily. Here,  then,  there  is  a  golden  opportunity  for  the 
intending  operator  to  seize  upon,  offering  to  boil  the 


184.  CO-OPERATIVE  CREDIT 

peas  on  which  the  pardon-seeking  pilgrim  is  to  walk; 
in  other  words,  to  lighten  the  conditions  while  still 
promising  the  same  benefit.  However,  thus  far  there 
has  not  been  much  success  to  record  in  these  attempts 
to  square  the  troublesome  circle.  For  the  weight  taken 
off  the  burden  has  only  added  new  dangers  instead  of 
removing  old  ones. 

There  are  societies,  of  course,  and  also  entire  unions, 
which  have  accepted  Eaiffeisen's  teaching  in  its  purity 
—  or  its  purity  barring  small  points  of  detail.  There 
are  such  in  Germany,  some  unattached  to  unions,  others 
forming  smaller  national  unions  of  their  own  in  their 
particular  state,  to  preserve  their  distinctive  Bavarian 
or  Wurttemberg  nationality.  And  in  Austria  —  more 
notably  in  Bohemia  —  I  have  come  across  societies 
which  remain  quite  true  to  their  original  apostle,  al- 
though attached  to  Unions  which  favour  adaptations. 
The  societies  in  Transylvania  and  in  Serbia,  and  those 
formed  severally  among  the  Serbians  and  Croatians  of 
Hungary,  are  also  pure,  so  far  as  one  can  see.  And 
so  are  the  caisses  rurales  et  ouvrieres  formed  by  M. 
Louis  Durand  in  France  — generally,  however,  with  a 
strong  leaning  to  the  Church  of  Kome.  However,  in 
Protestant  districts  like  the  Cevennes  there  are  also 
Protestant  societies.  But  all  indifferently  place  moral 
and  religious  aims  before  economic.  The  "  Agricul- 
tural Banks  "  of  Ireland  may  also  rank  as  true  copies 
of  the  Neuwied  pattern.  Dr.  Wollemborg's  "  neutral  " 
casse  rurali  in  Italy  are  very  facsimiles  of  German 
Raiffeisen  societies  —  with  this  difference  only  that 
they  accept  the  promissory  note,  which  in  German  so- 


VARIANTS  AND  DANGERPOINTS  185 

cieties  is  held  in  abhorrence  and  therefore  excluded,  as 
the  common  record  of  a  loan.  Such  note  is  well  under- 
stood in  Italy.  Others  besides  M.  Durand  in  France 
have  tried  to  acclimatise  the  genuine  Eaiffeisen  system, 
proposing  to  arrive  at  it  on  a  rather  roundabout  way, 
which  has  unfortunately  not  yet  reached  its  intended 
goal. 

Apart  from  these  instances,  the  Eaiffeisen  system  is 
represented  by  adaptations,  which  only  partially  reflect 
the  teaching  of  the  original. 

Barring  cranks  and  people  bent  upon  trying  to  com- 
bine irreconcilables,  it  is  the  three  forces  already  indi- 
cated which  have  fastened  upon  the  Eaiffeisen  system 
as  a  prey  to  be  exploited,  to  whom  we  owe  those  various 
adaptations  which  have  given  Eaiffeisenism  a  new  face. 
They  have  acted  energetically,  ingeniously,  sometimes 
each  by  itself,  sometimes  two  or  three  in  alliance. 
Thus,  although  in  France  and  Italy,  State  and  Church 
are  in  pronounced  antagonism,  elsewhere  the  two  fre- 
quently enough  readily  join  forces.  On  the  other  hand 
great  landlords  and  the  State  are  mostly  declared 
friends,  and  gladly  hunt  in  couples.  Such  alliance 
often  shows  itself  as  harmless  —  as  for  instance  in  Bul- 
garia, where,  to  suit  the  primitive  habits  of  the  peas- 
antry, co-operative  credit  is  put  into  the  shape  of  a 
friendly  society  with  continuing  periodical  pajTuents 
from  members  in  the  place  of  shares.  However  in  not 
a  small  proportion  of  the  adaptations  effected  the  in- 
fluence of  the  larger  landlords,  working  for  their  own 
advantage,  and  seeking  for  patronising  domination  over 
the  smaller  peasantry,  is  pretty  clearly  to  be  detected. 


186  CO-OPERATIVE  CREDIT 

To  run  the  gamut  of  alterations  effected,  the  curious 
attempt  to  devise  a  form  of  Eaiffeisenism  with  limited 
liability  only  may  be  regarded  as  devoid  of  political 
object,  save  that  it  is  held  to  facilitate  territorial  mag- 
nates' patronising  membership,  which  tells  in  the  direc- 
tion of  politics,  and  which  should,  even  on  that  ground, 
be  anathema.  Magnates  would  wish  to  stand  at  the 
head  of  any  agricultural  or  rural  movement  started,  so 
as  to  be  able  to  keep  it  in  leash ;  but  on  the  other  hand 
they  want  things  made  easy  for  themselves,  and  not  to 
venture  overmuch.  That  desire  has  been  given  effect 
to  in  two  provinces  of  Prussia,  with  the  aid  of  income 
tax  rolls  obligingly  placed  at  the  disposal  of  the  givers 
of  credit  by  authorities,  for  ascertaining  the  financial 
"  value  "  of  applicants,  and  in  Hungary  with  the  aid  of 
a  central  bank  endowed  by  the  Crown  and  magnates. 
Ko  regular  follower  of  Raiffeisen  would  for  a  moment 
recognise  societies  so  formed  as  true  Raiffeisen  socie- 
ties —  Raiffeisen's  successor  in  the  leadership  of  the 
Union,  Herr  Cremer,  wrote  to  me  emphatically  more 
than  twenty  years  ago  in  answer  to  my  complaint  about 
difficulty  in  obtaining  authority  for  introducing  un- 
limited liability  in  England :  "  Without  unlimited  lia- 
bility you  can  form  no  Raiffeisen  society." 

The  most  noteworthy  adaptation  to  be  mentioned  is 
that  which  Dr.  von  Langsdorff,  Herr  Marklin  and  Dr. 
Haas  devised  about  1880  in  Germany  and  which  has 
in  its  practical  application  become  identified  more  par- 
ticularly with  the  last  named  gentleman,  recently  dead, 
who,  with  the  eye  of  a  firstrate  organiser,  quickly  de- 
tected at  what  points  the  system  might  be  made  more 


VARIANTS  AND  DANGERPOINTS  187 

palatable  to  the  people  whom  he  desired  to  influence. 
Altruism  is  a  very  good  thing  in  theory;  but  egotism 
is  more  attractive.  Once  more,  religion  and  moral 
raising  are  firstrate  objects  in  the  abstract ;  but  ringing 
cash  in  the  pocket  is  far  more  magnetic.  It  is  not  sur- 
prising also  that  Eaiffeisen's  rather  self-willed  bearing 
and  austere  adherence  to  principle  should  have  given 
umbrage  to  earnest  fellow  workers  with  "  ideas,"  many 
of  which  "  ideas  "  are  good  in  themselves.  That  caused 
jarring  in  the  machinery.  Moreover  the  principle  of 
centralisation,  which  Raiffeisen  insisted  upon  as  in- 
dispensable is  decidedly  open  to  argument.  Decentra- 
lisation, turning  the  absolute  monarchy  into  a  cluster 
of  self-governing  republics,  gives  far  more  chance  to  in- 
dividual talent  and  the  arousing  of  a  healthy  rivalry 
and  emulation  in  the  putting  forward  of  new  ideas. 
On  such  lines  the  secedents  from  Eaiffeisen  organised 
their  own  new  union,  throwing  "  religion  "  overboard 
as  a  point  in  the  progTamme  unsuited  for  their  purpose 
and  turning  the  Union  into  an  organisation  in  which 
the  large  landowners  lead  and  devise  the  policy,  which 
is  distinctively  of  an  "agrarian  "  character  —  that  is, 
pursuing  material  advantages  solely  for  the  agricultural 
interest,  such  as  German  Governments,  regarding  land- 
lords and  the  docile  peasantry  as  their  peculiar  body- 
guard, are  not  unwilling  to  agree  to,  even  though  the 
favours  shown  should  have  to  be  dispensed  at  the  cost 
of  other  interests.  Add  to  that  very  pronounced  ag- 
gressive patriotism  which  consigns  "  John  Bull  and  the 
Frenchman  " —  in  desire  only,  but  in  desire  with  a  ver- 
itable vengeance  —  to  the  realm  of  darkness,  and  adu- 


188  CO-OPERATIVE  CREDIT 

lates  '^William  of  Hobenzollern,"  and  you  have  a  pro- 
gramme which,  under  Government  patronage,  marked 
by  a  shower  of  "decorations,"  conferment  of  titles, 
princely  presidencies  and  all  kinds  of  distinctions,  is 
bound  to  "  go."  To  get  more  wind  into  its  sails,  the 
new  school  broke  away  ostentatiously  from  Raiileisen's 
preference  for  the  absence  of  shares  and  secured 
Schulze's,  at  that  time  powerful,  countenance  and  al- 
liance by  declaring  in  favour  of  "  substantial "  shares 
—  which  in  practice  however,  notwithstanding  this  pa- 
per declaration,  have  on  an  average  not  been  raised 
very  much  above  the  figure  sanctioned  by  Eaiffeisen, 
although  in  some  provinces,  where  things  go  well 
altogether,  due  effect  has  undoubtedly  been  given  to 
the  new  dogma.  The  reason  why  this  has  not  been 
done  more  generally  is,  that  it  has  been  found  difficult 
to  compete  with  substantial  shares  against  Eaiffeisen 
banks  with  merely  nominal  shares  and  doing  equally 
well.  The  curtailment  of  sacrifice  on  entering  is  a  very 
telling  bait. 

On  these  lines,  as  a  purely  economic  and  distinctly 
agrarian  movement,  the  "  Imperial  Union,"  as  it  is 
now  rather  ambitiously  styled,  has,  with  the  help  of 
firstrate  men,  covered  Germany  with  societies  and  ac- 
complished a  great  deal.  It  basks  of  course  in  Govern- 
ment favour,  which  in  itself  helps  it  forward.  How- 
ever the  acceptance  of  State  assistance  was,  like  Eve's 
bite  into  the  apple,  an  afterthought  prompted  by  temp- 
tation. In  1881,  at  the  annual  congress  of  the  Schulze- 
Dclitzsch  societies,  whose  support  he  earnestly  sought, 
Dr.  Haas  still  proclaimed  emphatically :  "  We  take  our 


VARIANTS  AND  DANGERPOINTS  189 

stand  upon  the  principle  of  self-help  and  will  have  noth- 
ing to  do  with  State-help."  That  piecrust  promise  has 
long  since  been  forgotten,  as  it  was  bound  to  be  in  view 
of  the  programme  traced  for  the  Union,  which  was 
not  to  be  carried  through  without  much  State  patron- 
age. 

In  the  matter  of  the  supply  of  goods,  the  sale  of  pro- 
duce, dairying,  employment  of  electric  power,  and  of 
machinery  and  implements  and  the  like,  Dr.  Haas'  de- 
centralisation —  that  is,  the  distribution  of  power  and 
authority  over  a  number  of  independent  and  self-govern- 
ing, but  federated,  centres  —  and  the  policy  followed  of 
getting  the  largest  possible  number  together  without 
strict  regard  for  principle,  has  proved  most  successful. 
It  is  true  that  even  in  this  branch  of  its  business  the 
Union  has  at  times  ambitiously  overshot  the  mark,  as 
for  instance  when  it  embarked  upon  a  hopeless  specula- 
tion in  the  purchase  of  nitrate  deposits  in  Chile,  for 
working  which  its  capital  was  ridiculously  inadequate. 
But  in  general  the  collaboration  of  active  minds  and  the 
common  counsels  of  independent  local  leaders  have 
proved  admirably  stimulating.  It  is  indisputable  on 
the  other  hand  that,  as  Raiffeisen  has  protested,  "  the 
true  spirit  is  wanting  "  in  this  Union  —  the  spirit  by 
which  he  himself  was  led  and  which  he  laboured  to  in- 
fuse into  others,  the  spirit  of  a  desire  above  all  things 
to  benefit  one's  neighbours.  But  that  is  an  essential 
and  necessary  feature  of  the  new  departure.  The 
movement  has  become  collectivistically  egotistical. 
For  a  very  brief  few  years  "  religion  "  was  once  more 
replaced  as  a  catchword  upon  the  Union  banner,  to  pro- 


190  CO-OPERATIVE  CREDIT 

pitiate  the  true  Eaiffeisenists,  with  whom  a  shortlived 
working  arrangement  for  business  —  it  never  was  more 
—  was  concluded.  As  a  matter  of  fact  it  dropped  out 
again  when,  necessarily,  in  view  of  the  striking  differ- 
ence of  principle,  that  arrangement  came  to  an  end. 
But  in  the  province  of  banking  the  recent  disastrous 
crashes  in  themselves  indicate  that  the  older  system, 
like  the  wine  in  the  Gospel,  is  the  "  better."  I  had 
foreseen  something  of  the  sort  since  1895,  when  I  first 
visited  Haas  banks  and  found  a  decidedly  unco-opera- 
tive society  side  by  side  with  a  good  one,  within  an  easy 
walk  from  Herr  Haas'  own.  headquarters  then  at  Of- 
fenbach. You  cannot  make  "  big  battalions "  your 
aim  consistently  with  the  preservation  of  sound  prin- 
ciple. 

Things  as  a  matter  of  course  grew  lax  —  or,  let  me 
say,  lax  in  parts.  For  wherever  rigid  supervision  is 
exercised  there  are  as  excellent  banks  in  the  Imperial 
Union  as  are  to  be  met  with  anywhere  —  say,  in  Rhine- 
land  and  in  Hanover.  But  it  is  laxity  which  brought 
about  those  insolvencies,  spreading  distress  over  a  whole 
province.  It  is  laxity  which  has  prompted  that  dan- 
gerous practice  —  dangerous  in  such  connection  — 
now  become  quite  common  in  these  banks,  of  granting 
credit  in  current  account,  for  the  sake  of  —  so  it  is 
frankly  avowed  —  saving  trouble.  The  Union  has 
however  on  its  new  lines  not  been  able  to  do  without  out- 
side aid,  which  outside  aid  has  aggravated  the  evil  (so 
common  in  Germany)  of  relying  to  excess  upon  credit 
rather  than  upon  funds  of  one's  o%vn.  When  the  State- 
endowed   Central   Co-operative   Bank   was   created   in 


VARIANTS  AND  DANGERPOINTS  191 

Prussia  in  1895,  the  Eaiffeisen  Union  could  afford  to 
hold  aloof.  It  felt  strong  enough  in  itself.  The  Im- 
perial Union  could  not.  It  had  no  sufficient  strength 
in  itself.  When  in  1911  the  Eaiffeisen  Union,  mean- 
while over-persuaded  into  entering  into  business-  with 
the  Government  bank,  came  to  a  rupture  wdth  the  same 
Government  institution,  it  could  afford  summarily  to 
break  off  relations.  Once  more  the  Imperial  Union 
could  not.  It  had  been  pining  for  independence.  It 
is  so  pining  now.  During  the  last  years  of  Dr.  Haas' 
life  the  burden  of  his  admonitions  to  his  societies  was : 
"  Try  to  make  yourselves  independent !  "  As  long  ago 
as  in  1898  he  confided  to  me  that  his  aim  was  to  make 
his  Union  so.  He  believed  that  it  could  be  done  then, 
when  his  followers  were  indignant  at  the  —  very  rea- 
sonable —  terms  which  the  State  bank  announced  that 
it  must  thenceforth  in  justice  to  itself  insist  upon. 
"  We  hold  $7,500,000  in  deposits,"  so  Dr.  Haas  boasted 
to  me.  Alas,  that  was  not  nearly  enough.  And  the 
ensuing  crisis,  following  upon  the  withdrawal  of  Eng- 
lish money  from  German  banks,  in  connection  with  the 
Transvaal  war,  showed  that  it  was  not  by  any  means  all 
"  good,  lying  money."  Those  deposits  soon  melted 
away  to  a  small  remnant.  In  1898  the  Government  in- 
stitution could  snap  its  fingers  at  the  Imperial  Union. 
In  1905  the  Union  began  a  most  well  advised  agitation 
for  the  more  systematic  collection  of  deposits.  That 
was  a  step  in  the  right  direction.  But  the  results  have 
not  yet  proved  equal  to  the  need.  The  Union  still  lies 
bound  at  the  feet  of  the  State  institution. 

Here  we  have  a  pretty  typical  instance  of  Co-opera- 


192  CO-OPERATIVE  CREDIT 

tion  become  big-men-governed  and  political,  in  the  in- 
terests of  a  section. 

A  similar  example  is  to  be  met  with  in  Hungary, 
where  Co-operation  applied  to  Agriculture  is  often  held 
up  as  a  model  of  organisation,  on  the  ground  of  its 
rather  grandiose  conception  and  the  amount  of  funds 
made  available  for  it.  Xobody  could  do  fuller  justice 
to  the  truly  noble  aims  and  intentions  which  prompted 
its  founder,  the  late  Count  Alexander  Karolyi,  and  to 
his  beneficent  work  than  myself,  who  have  had  the  priv- 
ilege of  knowing  that  philanthropist  and  having  his 
views  explained  to  me.  And  no  doubt  allowance  has 
to  be  made  for  backward  conditions  among  the  peas- 
antry, and  a  primitive  state  of  things  generally  prevail- 
ing in  that  land  of  great  opportunities  and  great 
promise,  which  is  peopled  partially  by  Magyars.  The 
vis  inertice  there  prevailing  had  to  be  overcome  some- 
how. But  impatience  to  see  results  has  unavoidably 
forced  the  movement  off  its  co-operative  lines  and 
shunted  it  on  to  those  of  patronage  and  magnate  bene- 
factions, with,  as  a  matter  of  course,  ample  State  help 
and  State  interference  thrown  in,  to  extinguish  the  pro- 
per principle.  The  movement  necessarily  continues  to 
be  favoured  by  the  magnates  and  the  CrowTi,  without 
whose  help  it  would  collapse.  It  has  no  inherent 
stamina  in  itself.  And  the  intended  beneficiaries' 
prayer  is  this:  God  bless  the  squire  and  his  relations, 
and  keep  us  in  our  proper  stations!  It  reminds  one 
of  what  has  happened  elsewhere  —  say,  in  France, 
where  at  the  outset  great  landlords  befathering  the 
movement   of  syndicats  agricoles,  and   supplying  the 


VARIANTS  AND  DANGERPOINTS  193 

money  and  the  lead,  as  memhres  fondateurs,  would  fre- 
quently make  their  tenants  "  free "  of  the  syndicate 
membership  as  part  of  their  holding,  but  also  obliged 
them  to  join  it  as  part  of  their  contractual  duties,  with 
a  full  right  to  use  its  benefactions,  but  not  a  word  to  say 
in  the  management,  as  memhres  effectifs.  These  things 
are  legacies  left  to  us  in  the  old  world  of  Europe  from 
feudal  days.  Wherever  landlordism  is  strong,  it  will 
still  claim  its  privileges,  under  the  guise  of  benefac- 
tions —  which  "  benefactions  "  are  in  themselves  the 
antipodes  of  true  Co-operation.  The  big  man  may 
rightly  help  and  may  guide.  Eaiffeisen  distinctly 
wanted  him  to  do  so.  But  it  must  be  as  an  equal. 
Co-operation  cannot  put  up  with  "  bosses."  I  cannot 
think  that  such  societies  as  I  have  just  described 
would  form  an  acceptable  model  to  copy  in  America. 

There  are  other  ''  landlorded  "  adaptations  in  Con- 
tinental Europe.  But  in  them  either  Church  or  State 
plays  so  conspicuous  a  part  as  accessory,  that  they  had 
best  be  reviewed  under  one  of  the  following  heads.  In 
general  the  record  of  magnate-ridden  or  "  agrarian  " 
Co-operation  is  not  seductive,  for  all  its  promising  be- 
ginnings. It  has  created  societies,  but  no  Co-operation. 
It  has  distributed  gifts,  but  has  not  contributed  to 
the  creation  of  new  sources  of  wealth.  For  the  main 
benefits  arising  from  Co-operation,  even  Co-operation 
for  credit,  is  not  the  money  of  which  it  supplies  the 
use,  but  the  capacity  for  turning  opportunities  to  better 
account  by  common  action.  And  whatever  be  the  as- 
sistance from  outside  given  to  Co-operation,  the  result 
is  bound  to  be  the  missing  of  the  principal  aim,  that  is, 


194.  CO-OPERATIVE  CREDIT 

the  creation  of  an  inherently  permanent  and  independ- 
ent institution,  ungoverned  by  any  one's  caprice,  who 
has  given  and  may  therefore  also  withdraw. 

The  partiality  evidenced  by  the  Church  —  by  which 
in  the  present  case  is  meant  the  Church  of  Rome  —  for 
rural  co-operation  can  occasion  no  surprise.  Raiffeisen 
co-operation  was  intended  to  be  a  moral  and  religious 
education,  and  accordingly  the  priest,  or  else  the  minis- 
ter, must  be  its  natural  ally,  and  his  assistance  was 
particularly  sought.  To  whatever  of  the  leading 
churches  he  may  have  belonged,  the  ordained  officer 
of  the  Church  has  from  the  outset  shown  himself  a  firm 
and  loyal  supporter  of  Eaiffeisen's  cause,  not  —  at 
first,  at  any  rate  —  with  any  design  that  one  could  dis- 
cover of  harnessing  small  folk  by  such  means  to  his 
particular  denomination.  He  acted  the  part  of  the 
good  Samaritan.  Eaiffeisen  himself  found  his  princi- 
pal support  among  the  clergy  of  the  two  leading  denom- 
inations of  his  own  country ;  and  in  Italy,  where  prac- 
tically there  is  no  Protestantism,  the  paroco  (the  par- 
ish priest)  of  Loreggia  was  the  loyal  ally  of  Dr.  Wol- 
lemborg,  a  Jew,  in  founding  the  firstling  bank ;  and  in 
many  enough  instances  have  the  society  meetings  been 
held  by  permission  in  the  parish  church.  As  time  wore 
on,  however,  the  Church  discovered  that  it  had  secular 
interests  of  its  own,  which  might  be  greatly  forwarded 
by  the  help  of  the  popular  movement.  The  consequence 
was  the  uprising  of  "  catholic  "  banks,  in  which  mem- 
bership came  to  be  made  dependent  upon  churchman- 
ship  and  submission  to  clerical  rule.  "  Denomina- 
tional Co-operation  "  does  not  sound  well  in  co-opera- 


VARIANTS  AND  DANGERPOINTS  195 

tors'  ears.  But  there  is  something  to  be  said  in  excuse. 
There  are  in  fact  "  catholic  "  banks  which  have  done 
excellent  work,  probably  with  absolute  singleness  of 
purpose.  And  in  some  countries  one  can  scarcely  help 
forgiving  the  denominationalism  practised,  in  view  of 
special  circumstances.  In  Belgium,  in  Italy  and  in 
some  parts  of  France  Protestantism  is  not.  And  if 
people  are  to  be  made  religious  and  moral,  they  must 
be  attracted  to  the  Church,  and  the  Church  there  means 
"  Catholicism."  M.  Luzzatti  is  the  very  reverse  of  a 
sacerdotalist  or  "  catholic."  Nevertheless  he  has  pub- 
licly commended  the  work  of  the  Belgian  "  Catholics  " 
(who  are  exceedingly  loyal  to  the  Pope)  for  stemming 
the  rising  and  scarcely  governable  tide  of  Socialism,  in 
their  country. 

It  is  not  quite  easy  to  say,  but  it  was  probably  the 
German  "  Peasants'  Associations  "  which  started  the 
denominational  movement  —  first  of  all  on  the  "  catho- 
lic "  side.  The  credit  organisations  of  these  associa- 
tions are  pretty  faithfully  copied  from  the  Raiffeisen 
system,  and  they  have  done  a  deal  of  good.  As  a  se- 
quel to  the  raising  of  the  "  catholic  "  banner  in  them, 
there  have  also  risen  up  some  Lutheran  unions.  But 
the  prevailing  tone  is  still  "  catholic,"  with  pro- 
nouncedly "  catholic "  large  landowners  at  the  head. 
It  was  from  these  "  Peasants'  Unions  "  that  Abbe  Mel- 
laerts,  in  Belgium,  learnt  Raiffeisen  co-operation, 
which,  congenially  to  its  new  environment,  became  un- 
der his  guidance  dyed  with  the  most  sable  hue  of 
"Catholicism."  It  reads  queer  to  Anglo-Saxon  eyes 
that  the  parish  priest  is  the  ex-officio  chairman  of  each 


196  CO-OPERATIVE  CREDIT 

local  society,  and  also  its  "  almoner  and  spiritual 
director  "  —  unless  he  appoint  a  deputy  —  and  that 
every  meeting  of  committee  or  members  has  to  be 
opened  and  closed  with  prayer,  with  sundry  "  ad- 
dresses "  distributed  over  the  year  and  an  obligatory 
"  high  mass  "  imposed  as  a  duty  throughout  the  union 
on  the  calendar  day  of  S.  Isidore,  who  is  the  patron 
saint  of  the  union  and,  finally,  a  free  "  mass  for  the 
soul  "  throwm  in  as  a  benefit  for  the  departed  member. 
However  the  Boerenhond  has  done  and  bids  fair  still 
to  do  much  good.  And  the  rampant  Socialism  of  the 
Belgian  industrial  working  classes  is  held  to  call  for  a 
strong  antidote.  Extremes  call  for  opposite  extremes. 
From  Belgium  very  naturally  "  catholic  "  co-operation 
has  found  its  way  easily  into  the  Netherlands  where,  in 
one  union,  it  has  become  more  intolerant  than  in  its 
first  home.  In  Switzerland,  likewise,  the  new  Eaiffei- 
sen  movement,  which  goes  on  gathering  strength,  is  de- 
cidedly tinged  with  '^  Catholicism."  Probably  some 
stimulus  of  the  sort  was  needed  to  make  it  take  root  in 
a  country  in  which  banking  organisation  is  highly  de- 
veloped and  very  cheap  arrangements  for  mortgages, 
even  down  to  very  small  amounts,  make  credit  easy. 
For  in  the  early  nineties  the  Eaiffeisen  movement  never 
got  beyond  three  tiny  dead-and-alive  banks.  Barring 
the  payment  of  a  dividend  on  shares  and  reduction  of 
payments  to  the  indivisible  reserve  —  to  only  half  the 
surplus  —  it  operates  on  Eaiffeisen  lines.  But  it  is 
a  "Christian  Socialist"  organisation  (in  the  continen- 
tal sense  of  the  word)  which  has  started  it  and  which, 
apart  from  some  little  assistance  given  by  the  State, 


VARIANTS  AND  DANGERPOINTS  197 

provides  it  with  funds,  so  as  to  make  it  rather  a  dis- 
tributing organisation  than  a  creative  co-operative  in- 
stitution. The  main  stronghold  of  specifically  "  cath- 
olic "  Eaiffeisenism —  as  also  of  Luzzattism  —  is  Italy. 
There  the  "  catholic  "  movement,  once  started  in  1894, 
has  completely  overtopped  the  "  neutral,"  which  made 
its  appearance  in  1883.  The  contention  between 
Church  and  State  is  in  that  country  so  pronounced  that 
it  was  scarcely  to  be  expected  th^t  the  Curia  would 
allow  so  promising  and  powerful  an  instrument  for  in- 
fluencing the  great  mass  of  the  peasantry  to  exist  with- 
out seeking  to  put  it  into  its  own  trappings  which,  with 
the  rural  societies  already  almost  dependent  upon 
priestly  assistance,  was  not  a  difficult  task  to  accomplish. 
Pope  Leo  XIII  expressly  pronounced  his  blessing  upon 
co-operative  societies  of  the  "  catholic  "  type.  One  of 
the  intended  "  feeders  "  of  such  banks  (still  to  come)  in 
Spain  immortalises  that  Pope's  name.  And  Pope  Pius 
X  was  himself  a  declared  co-operator  before  he  became 
Pope.  At  the  outset  the  rule  of  the  Church  was  made 
to  sit  lightly  enough  upon  societies.  "  Catholicism " 
was  more  of  a  badge  than  of  a  constraining  principle. 
As  time  wore  on,  however,  the  reins  came  to  be  grasped 
more  tightly  and  the  movement  consequently  became 
more  of  a  fighting  weapon  for  Catholicism.  From  a 
purely  co-operative  point  of  view  that  is  to  be  regretted. 
For  "  Catholicism  "  cannot  in  this  instance  be  said  to 
have  added  to  the  efficiency  of  the  system.  Organisa- 
tion is  according  to  dioceses,  with  the  local  bishop  ipso 
facto  at  the  head  of  each.  And  bishops  are  not  com- 
monly good  men  of  business.     There  have  been  some 


198  CO-OPERATIVE  CREDIT 

nasty  go-wrongs,  which  probably  less  regard  for  "  Cath- 
olicism "  and  more  for  business  might  have  averted. 

Pronouncedly  religious  as  was  Eaiffeisen's  aim,  one 
cannot,  in  reviewing  the  whole  progress  of  the  denomi- 
national movement,  see  that  denominationalism  has  in 
general  done  much  good  to  Co-operation.  The  cassock 
notoriously  makes  but  a  poor  office  coat.  And  generally 
speaking  John  Bunyan's  "  Mr.  By-ends  "  has  shown  on 
more  occasions  than  in  the  "  Pilgrim's  Progress  "  that 
he  is  no  strengthening  companion  and  that  the 
"  promised  land  "  lies  beyond  his  reach.  Every  man 
had  best  keep  to  his  own  business. 

By  far  the  most  dangerous  of  the  three  forces  named, 
aiming  at  diverting  C'o-operative  Credit  from  the 
straight  path,  is  the  State.  And  yet  the  State  has 
shown  itself  the  most  eager  of  all  to  seize  upon  the  op- 
portunities offered  to  it,  like  the  ruler  of  Tartarus,  who 
offers  a  gift  to  receive  a  soul  in  exchange.  The  State 
lies  under  the  same  suspicion.  Por  —  thus  far  at  any 
rate  —  it  has  never  offered  an  inch  in  this  matter  with- 
out asking  for  the  proverbial  "  ell "  in  return.  Its 
pretension  shows  itself  everywhere  to  be  to  dictate  — 
and  to  use.  Even  the  comparatively  benign  British 
Government  has  soon  enough  discovered  its  cloven  hoof, 
once  the  Agricultural  Organisation  Society  had  been 
weak  enough  to  solicit  its  money  aid.  That  aid  was 
given  —  of  course.  It  was  even  pressed  upon  a  hesitat- 
ing committee.  But  in  return  absolute  rule  was  es- 
tablished. It  is  the  Board  of  Agriculture  which  has 
now  framed  the  rules  and  nominated  the  Committee; 
and  its  spokesman  on  that  body  has  openly  claimed  that, 


VARIANTS  AND  DANGERPOINTS  199 

since  it  is  the  Government  which  pays  the  piper,  it  is 
the  Government  also  which  should  call  the  tune.  In 
Ireland  the  great  contention  now  is  whether  all  Sir 
Horace  Plunkett's  splendid  work  in  organising  agricul- 
ture —  which  has  enlisted  the  admiration  of  all  the 
country,  from  King  Edward  downward  —  shall  be  set 
aside  for  a  badly  put  together  scheme  which  the  farm- 
ers have  shown  that  they  do  not  want.  If  these  things 
are  done  in  the  green  tree  of  constitutional  Great 
Britain,  what  is  to  be  looked  for  in  the  dry  trunk 
of  the  Government-ridden  Continent  ?  There  Govern- 
ments are  after  votes  —  and  after  votes  which  are  to  be 
directed  at  will.  Where  there  is  no  Crown,  as  in 
France,  there  are  parties  alternately  holding  the  helm, 
bidding  in  competition  for  the  support  of  country  folk 
by  gifts  out  of  the  taxpayers'  pocket,  but  claiming  also 
to  use  those  votes  in  their  own  way.  Dr.  Hugenberg's 
very  frank  admiration  to  this  effect  as  regards  the  Gov- 
ernment-ridden movement  in  Germany  has  already  been 
quoted.  Dr.  Heiligenstadt,  for  his  part,  the  President 
of  the  State-endowed  Central  Co-operative  Bank,  who 
accordingly  dispenses  the  gifts  which  the  Prussian  State 
sets  apart  for  "  loyal "  co-operators,  has  admitted  in 
Parliament  that  the  institution  over  which  he  presides 
— ■  with  unquestionable  business  ability  —  was  formed 
and  endowed  with  nearly  $20,000,000  of  public  money, 
as  a  means  of  providing  a  "  head,"  a  leader,  for  the  co- 
operative host.  Without  such  official  "  head,"  so  he 
added,  it  would  have  constituted  "  a  danger  "  for  the 
State  to  allow  so  many  people  to  combine  in  societies. 
That  reminds  one  of  the  palmiest  days  of  the  second 


200  CO-OPERATIVE  CREDIT 

French  Empire,  when  all  associations  of  citizens  not 
especially  approved  by  the  Government  were  forbidden, 
and  of  the  earliest  days  of  the  tyrannical  First  French 
Republic,  which  in  1791  by  special  law  likewise  inter- 
dicted the  formation  of  societies  of  citizens  of  any  sort, 
for  fear  that  they  might  hatch  seditious  plots.  The 
two  edicts  relegated  Co-operation,  which  the  French 
people  were  wistfully  thinking  of,  to  a  far  future. 

That  is  one  objection  to  State  interference.  The 
State  interferes,  in  order  to  rule.  It  gives,  in  order  to 
get  more  back  in  return.  Or,  if  it  do  not  cherish  such 
intention  at  the  moment  when  starting  on  its  course 
of  action,  opportunity  very  soon  comes  in  to  make  of 
it  the  proverbial  "  thief,"  who  under  a  pretence  of  kind- 
ness takes  advantage  of  his  power.  And  in  this  matter 
all  Governments  are  alike. 

There  are  some  countries,  to  be  sure,  in  which  it 
appears  difficult  to  steer  clear  of  all  State  initiative. 
Thus  we  could  not  have  begun  a  co-operative  credit 
movement  in  India  —  richly  beneficent  as  it  has  already 
proved  —  without  the  State  taking  the  lead  —  even  be- 
yond passing  the  Act  necessary  to  legalise  it.  But  I 
take  particular  credit  for  it  that  —  as  Lord  Curzon  has 
admitted  when  giving  the  royal  assent  to  the  first  Co- 
operative Act  ^  —  it  was  my  warning  which  determined 
his  Government  to  cut  down  State  aid  to  a  minimum, 
which  has  by  this  time,  thanks  to  the  awakening  of  self- 
help,  already  become  dispensable.  Once  more,  in  Rus- 
sia the  inert  mass  of  knias-ridden  moujiks  required  to 
be  pushed  before  they  could  be  got  to  put  their  hands 

1  See  Sir  Thomas  Raleigh's  "  Lord  Curzon  in  India,"  page  179. 


VARIANTS  AND  DANGERPOINTS  201 

to  the  plough.  ]SIow  that  their  intelligence  has  been 
aroused,  they  are  rightly  seeking  to  throw  off  the  golden 
yoke  and  rely  exclusively  upon  themselves.  And  the 
Russian  Finns,  who  have  a  movement  of  their  own,  con- 
tend that  without  Government  aid,  in  the  shape  of  pub- 
lic money  for  their  central  bank,  they  could  not  have 
started  those  co-operative  banks  which  they  now  find  so 
extremely  useful.  They  may  be  right  or  they  may  be 
wrong.  In  any  case  that  ""  miller's  thumb ''  pressed 
upon  Co-operation  has  even  there  — has  to  a  far  greater 
extent  in  Russia  proper,  in  Roumania,  in  France  and 
in  Austria  —  left  its  ugly  mark  upon  artificially  stimu- 
lated Co-operation.  The  determination  to  rule  auto- 
cratically and  to  exploit  was  very  clearly  revealed  in 
the  action  of  the  Prussian  State-endowed  Central  Bank 
when  its  President  by  his  tyrannical  attempt  at  dicta- 
tion brought  about  his  dramatic  rupture  with  the  Raif- 
feisen  Union.  He  fondly  persuaded  himself  that  he 
had  the  Union  helpless  within  his  grasp.  He  had  mis- 
calculated. Raiffeisenism  resisted  —  and  carried  the 
day  —  and  is  the  better  for  it. 

However  there  are  more  reasons  than  this  to  make  it 
advisable  for  co-operators  to  beware  of  an  alliance  with 
Government.  Government  may  do  a  great  many 
things.  Among  the  services  which  under  the  double 
cross  of  St.  Stephen  it  has  rendered  to  Co-operation  in 
Hungary,  Count  Joseph  Mailath,  the  present  leader  of 
the  Magyar  co-operative  movement,  includes  as  the 
chiefest  the  pressure  which,  through  the  army  of  its 
servants,  it  has  been  able  to  exercise  upon  the  popula- 
tion, to  form  co-operative  societies,  such  as  it  desired, 


202  CO-OPERATIVE  CREDIT 

to  order.  Here  are  bis  own  words.  ^  "  Here  was  the 
money  (provided  conjointly  by  tbe  ]\Iagnates  and  the 
Crown)  to  begin  wath;  however  the  main  advantage 
(viz,  of  Government  interference)  was,  that  public  ser- 
vants now  considered  it  to  be  their  duty  to  promote  the 
undertaking  with  their  influence,  and  bestirred  them- 
selves actively  in  its  behalf."  Quite  so.  The  thing  is 
rampant  both  in  Hungary  and  in  Austria  —  and  else- 
where as  w-ell.  Public  officers  under  Government  pre- 
cept employ  their  political  power  to  press  people,  quite 
independently  of  their  owti  wishes,  to  form  societies 
which  are  dubbed  "  co-operative,"  but  which  in  not  the 
remotest  degree  deserve  that  name.  They  are  societies 
"  to  please  the  authorities,"  dependent  for  life  upon  the 
Government's  smile  and  withering  away  as  soon  as  such 
smile,  and  the  favour  which  lies  behind  it,  are  with- 
drawn. Experience  has  fully  established  the  fact  that 
genuine,  creative  co-operation  can  live  only  when  based 
upon  its  own  efforts  and  thoroughly  independent,  called 
into  being  by  the  earnest  will  of  the  people  who  prac- 
tise it.  A  Government  may  teach,  instruct,  assist  with 
means  for  obtaining  knowledge.  It  need  grudge  no 
generosity  on  such  work.  But  the  resolution  to  co- 
operate must  be  the  free  will  act  of  the  co-operators 
themselves.  As  for  money  help,  Laurence  Sterne  well 
observes  that  "  not  all  is  gain  that  is  got  into  the  purse." 
There  is  "  lucky  money."  And  there  is  also  very  un- 
lucky.    Look  at  the  millions  (of  marks)  of  State  money 

1  See  the  Report  of  Proceedings  of  the  Sixth  Concrress  of  the 
International  Co-operative  Alliance.  1904.  (I^ublished  by  P.  S. 
King  and  Son,  Westminster),  p.  451. 


VARIANTS  AND  DANGERPOINTS  203 

wasted  in  Prussia  on  "  co-operative  "  elevators  which 
would  not  live!  Look  at  the  money  thrown  away  in 
Italy  on  the  contadino  impreparato,  that  is,  the  peas- 
ant unprepared  for  and  uninstructed  in  Co-operation! 
Look  at  the  money  wasted  in  Austria  on  societies  that 
were  formed  with  taxpayers'  crowns,  only  to  collapse! 
And  look  at  the  Hessian  banks  which,  indirectly  at  any 
rate,  rested  on  State  coddling! 

Government  is  unfitted  to  direct  —  and  therefore  to 
aid  —  Co-operation,  because  it  cannot  distinguish  be- 
tween man  and  man,  and  case  and  case.  It  necessarily 
has  to  proceed  mechanically,  by  rule  of  thumb,  because 
all  with  whom  it  has  to  do  are  equally  citizens.  Now 
that  is  the  last  thing  that  will  answer  in  matters  of 
credit.  The  particular  object  of  Co-operation  in  that 
application  is  to  disting-uish  between  the  good  borrower 
and  the  bad,  the  legitimate  case  and  the  illegitimate,  in 
Professor  Carver's  words,  to  know  how  to  refuse,  as  well 
as  to  grant,  credit.  It  has  to  use  human  brains  in  every 
transaction,  regulating  its  action  accordingly.  It  wants 
in  its  officers  responsibility  to  members,  not  to  a  politi- 
cal authority,  which  may  forbearingly,  in  the  favoured 
man,  take  the  will  for  the  deed  and  lose  others  their 
money.  And  we  ought  to  bear  in  mind,  in  addition, 
that  the  object  of  Co-operative  Credit  is  not  simply  to 
distribute  money,  but  to  teach  co-operators  how  to  em- 
ploy their  puny  forces,  how  to  take  advantage  of  op- 
portunities by  common  action  —  just  as  the  object  of 
Education  is  not  to  cram  pupils'  heads  with  facts  and 
figures,  but  to  teach  them  how  to  use  their  brains. 

There  is  a  great  deal  of  Government-started  and 


204,  CO-OPERATIVE  CREDIT 

Government-directed  Co-operation  in  Europe.  But 
the  number  of  its  institutions  is  superior  to  the  value 
of  their  achievements.  Germany,  and  in  it  above  all 
others  Prussia,  always  suspicious  of  independent  Co- 
operation —  as  we  have  seen  —  set  the  tune.  It 
created  its  State-endowed  Central  Bank,  on  behalf  of 
which  it  is  set  up  as  a  boast  that  it  does  not  interfere  in 
the  organisation  of  societies.  Ko;  not  formally.  But 
it  holds  the  power  of  the  purse  which  is,  as  we  know  in 
constitutionally  governed  countries,  the  pith  of  the  mat- 
ter, the  Archimedean  point  from  which  the  world  may 
be  moved.  And  it  is  not  from  regard  for  Co-operation 
that  it  forbears  to  interfere  in  organisation,  but  from 
regard  for  its  own  safety.  A  regional  union  of  banks 
makes  a  safer  borrower  to  lend  to  than  a  mere  local 
society  —  especially  as  the  State  bank  compels  the  local 
banks  for  its  further  protection  to  interlink  their  lia- 
bility, so  that  one  becomes  answerable  for  all  the  others, 
which  is  a  most  dangerous  practice  for  any  bank  to 
agree  to.  State  aid  and  interference  have  not  altered 
the  form  of  organisation  much  in  Germany,  but  they 
have  essentially  altered  its  spirit.  And  we  see  the 
results  in  the  continued  refusal  of  the  Schulze-Delitzsch 
banks  to  have  anything  to  do  with  the  State  bank,  in  the 
defection  of  the  Raiffeisen  Union,  the  dissatisfaction  ex- 
pressed by  the  Union  of  "  Trade  Credit  Societies  "  and 
in  the  yearning  for  power  to  rebel  evidenced  among  the 
members  of  the  Imperial  Union. 

The  adaptations  carried  out  in  France  by  reason  of 
the  intervention  of  the  State  differ  somewhat  in  char- 
acter from  those  effected  in  Germany,  but  not  very 


VARIANTS  AND  DANGERPOINTS  205 

much  in  their  results.  The  original  idea  of  the  prime 
movers  in  the  matter  was  to  acclimatise  the  Raiffeisen 
system  in  France.  It  was  the  success  of  the  Eaiffeisen 
banks  that  M.  Meline,  then  already  the  leader  of  what 
may  be  called  the  agricultural  party  in  France,  pointed 
to  when  demonstrating  his  desire  to  stimulate  people  to 
emulation  in  his  own  country.  And  the  founder  of  the 
first  agTicultural  credit  society  established  in  France, 
M.  Bouvet,  of  Poligny,  wrote  me  twenty  years  ago 
that  "  no  doubt  it  would  have  been  better  if  we  could 
have  established  Eaiffeisen  societies."  It  was  from  the 
Eaiffeisen  Union  that  M.  Louis  Durand  learnt  his  co- 
operation. And  the  Centre  federatif,  which  was  the 
first  body  systematically  to  set  itself  to  organise  co- 
operative credit  societies  in  its  country,  placed  the  Eaif- 
feisen system  upon  its  programme  by  the  side  of  M. 
Luzzatti's.  However  it  appears  that  the  average 
Frenchman  lacks  initiative  of  his  own  and  wants  to  be 
driven.  M.  Bouvet  had  to  devise  a  new  system, 
financed  and  directed  to  some  extent  by  himself.  M. 
Durand's  first  two  —  purely  Eaiffeisen  —  societies 
soon  collapsed.  And  the  Centre  federatif  never  made 
any  headway  to  speak  of,  either  with  Luzzatti  or  with 
Eaiffeisen  banks.  Closely  following  the  German  ex- 
ample seemed,  of  course,  out  of  the  question.  Politics 
forbade  that.  There  was,  accordingly,  to  be  no  central 
bank,  as  in  Germany.  Whereas  the  German  Central 
Bank  forced  itself  upon  a  co-operative  system  ready 
made,  the  French  Government  began  by  creating  a  cen- 
tral fund,  growing  to  huge  proportions,  under  its  own 
management,  with  the  help  of  which  it  proposed,  and 


206  CO-OPERATIVE  CREDIT 

continues  to  try,  to  organise  a  co-operative  system  sub- 
ject to  its  sway.  So  in  one  respect  it  interferes  more 
with  credit  societies  than  does  the  German  bank,  while 
on  other  points  no  doubt  its  action  is  more  restrained. 
Like  the  German  bank  it  deals  —  in  the  main  —  not 
with  single  local  societies  but  only  with  *'  regional 
banks,"  composed  in  each  case  of  a  cluster  of  local  banks, 
but  really  charged  to  create  such.  It  is,  of  course,  eas- 
ier to  deal  with  not  quite  a  hundred  regional  banks 
than  with  some  thousands  of  local  societies  and,  al- 
though the  organisation  of  regional  bodies  is  different 
from  that  in  Germany  —  where  the  district  central 
bank  is  supported  by  a  very  network  of  entangled  local 
liabilities  —  still,  since  it  is  the  regional  bank  which 
holds  and  dispenses  the  money,  the  security  given  is 
better.  The  regional  banks  are  advanced  —  and  some 
of  them  at  any  rate  look  upon  the  advance  as  a  gift  — 
money  allotted  to  them  by  a  Government  Commission 
which  has  an  unfettered  hand  in  the  matter,  free  of  in- 
terest, on  condition  of  relending  it  to  local  banks  at  a 
very  moderate  rate,  which  should  not  exceed  the  bank 
rate  of  21/0  per  cent,  but  has  in  many  cases  been  fixed 
at  only  2  per  cent.  Such  arrangement  has  in  times  of 
tight  money  led  to  the  most  unbusiness-like  result  that, 
whenever  more  money  was  required  —  which  is  usual 
in  times  of  tight  money  —  since  the  Government  ad- 
vance was  only  limited,  such  "  more  "  had  to  be  ac- 
quired at  a  rate  which  made  the  bank  the  heavier  a  loser 
the  more  business  it  did.  Practically  it  is  the  regional 
banks  —  in  shares  of  which  local  banks  designedly  in- 
vest all  their  own  share  money,  since  in  such  shape  every 


VARIANTS  AND  DANGERPOINTS  207 

franc  of  theirs  commands  potentially  four  francs  of 
Government  funds  —  which  lend,  and  the  local  banks 
which  only  adjudicate  upon  the  case.  Government  in- 
terference has  necessitated  some  very  restricting  me- 
chanical limitations  —  as  to  the  object  of  the  advance, 
the  purely  "  agricultural "  calling  of  the  borrower  and 
so  on  —  which  have  of  course  worked  badly  and  are 
therefore  about  to  be  recast.  jS^otwithstanding  excellent 
administration  at  headquarters,  in  the  Ministry  of  Ag- 
riculture, among  a  huge  host  of  banks  created  to  give 
employment  to  at  any  rate  a  decent  part  of  the  public 
money  voted,  the  results  have  been  rather  the  systema- 
tised  distribution  of  money  cheapened  by  very  artificial 
means  than  the  creation  of  productive  Co-operation.  A 
Select  Committee  of  the  Chamber  of  Deputies  appointed 
to  inquire  has  recently  reported  in  the  same  sense  in 
which  the  Director  of  Agricultural  Credit  has  repeat- 
edly complained  in  his  circulars,  that  money  is  only 
very  tardily  repaid  and  that  funds  are  not  accumulated 
as  was  intended.  ^     The  Government  intended  its  assist- 

1  "  Le  Credit  agricole,  tel  qu'il  fonctionne  actuellement,  n'est 
pas  a  I'abri  de  tout  reproche,  et  sur  deux  points  au  moins  on 
peut  relever  des  vices  dans  son  fonctionnement. 

"  C'eat  d'abord  un  abua  g6n6ral  des  renouvellements  de  prets. 
L'honorable  M.  Raynaud,  Ministre  de  I'Agriculture,  relevait  deja 
cette  imperfection  dans  son  rapport  du  23  novembre  1910  au 
President  de  la  Republique:  '  Certaines  caisses,'  disait-il,  'n'exi- 
gent  pas  de  leurs  emprunteurs  un  engagement  precis  en  ce  qui 
concerne  la  date  du  remboursement  du  pret  demands,  et  des 
renouvellements  trop  nombreux  en  prolongent  la  dur^e  d'une 
facon  anormale  et  qui  n'est  pas  sans  danger.  II  est  des  caisses 
regionnales  qui  cherchent,  par  des  artifices  varies  de  leur  comp- 
tabilit^,  Jl  dissimuler  en  quelque  sorte  inconsciemment  a  elles  memos 
et  a  TAdministration  la  veritable  situation  qu'elles  se  crdent 
ainst  et  les  dangers  auquels  elles  s'exposent  et  qui  leur  ont  4t6 
souvent  signal^s.'  Ces  dangers  sont  reels,  car  lorsqu'iin  agri- 
culteur  vend  une  recolte  obtenue  a  1  aide  d'un  pret  et  ne  rem- 


208  CO-OPERATIVE  CREDIT 

ance  to  serve  as  a  preparation  for  fully  independent 
Co-operation,  like  that  practised  in  the  Kaiffeisen  Un- 
ion. However  members  shrink  from  accepting  the  re- 
quired liability  and  prefer  artificially  cheapened  loans 
to  the  gathering  up  of  an  endowment  fund  of  their  own. 
Hence  the  law  is  now  to  be  recast. 

Here  is  another  attempt  made  to  create  Co-operation 
from  the  outside,  with  the  help  of  outsiders'  money, 
by  mechanical  methods,  which  may  be  said  to  have 
failed!  N'o  wonder  the  more  responsible  agricultural 
opinion,  as  reflected  in  the  Agricultural  Syndicates,  has 
rebelled  and  is  trying  to  form  its  own  independent 
central  institution.  In  Government  quarters  the  dis- 
satisfaction of  these  gentlemen  is  attributed  to  political 
motives.     The  Agricultural  Syndicates  are  said  to  be 

bourse  pas  la  caisse  locale,  celle-ci  perd  tout  controle  sur  I'usage 
de  I'argent  qu'elle  a  prete,  et  son  emprunteur  peut  se  trouver  un 
jour  dans  rimpossibilitg  de  la  rembourser  sans  qu'elle  s'en  doute. 

"  En  outre  il  existe  une  tendance  regrettable,  parmi  les  soci^t^a 
de  credit  agricole,  a  considerer  conime  des  dons  les  avances  tem- 
poraires  que  I'Etat  leur  fait.  C'est  ainsi  qu'au  niois  de  mars 
1910,  dans  son  rapport  a  I'Assembl^e  generale,  le  directeur  d'une 
caisse  r^gionale  s'exprimait  de  la  fagon  suivante:  'Nous  ne 
pensons  pas  que  I'Etat  nous  oblige  a  rembourser  un  jour  les 
avances  qu'il  nous  accorde  aujourd'hui  si  g^n^reusement.'  Et 
il  parlait  aillcurs  '  du  cas  bien  improbable  oil  I'Etat  demanderait 
le  remboursement  de  ses  avances  .  .  .'  Le  resultat  d'une  con- 
ception aussi  abusive  est  qu'en  1909,  si  I'Etat  avait  accords  pour 
plus  que  47  millions  d'avances,  il  n'avait  regu  que  2,800,000  francs 
de  reboursements.  Et  jusqu'a  I'heure  actuelle,  lea  rembourse- 
menta  sont  demeur^s  aussi  insuffisanta. 

"  Le  credit  agricole  n'a  pas  atteint  en  France,  mOme  depuis 
cette  nouvelle  organisation,  le  developpement  qu'on  lui  voit 
prendre  ailleurs." 

Rapport  fait  au  nom  de  la  Commission  du  Commerce  et  de 
VIndustrie  charg^e  d'examiner  le  projet  de  loi  ayant  pour  objet 
V organisation  du  credit  au  petit  et  an  moyen  commerce,  a  la  petite 
et  la  moyenne  industrie  et  aux  associations  ouvri^res  de  produc- 
tion. Par  M.  Jjandry,  d6put6. —  Chambre  dea  D^put^s.  Session 
de  1913.     No.  2590. 


VARIANTS  AND  DANGERPOINTS  209 

ruled  by  royalists.  To  some  extent  this  may  be  true. 
However  the  arousing  of  party  spirit  is  unavoidable, 
once  the  direction  of  a  movement  which  ought  to  be 
non-political,  and  the  supply  of  it  with  money,  are 
left  to  a  distinctly  political  authority,  like  the  party 
Government.  If  royalists  and  "  Catholics "  rebel 
against  a  "  secularist  "  and  "  republican "  Govern- 
ment's action,  it  is  that  Government  which  began  the 
strife  by  invidious  discrimination  against  societies 
which  in  the  opinion  of  lawyers  are  as  fully  entitled  to 
benefits  as  those  patronised  by  the  Government,  but 
which  on  a  purely  quibbling  plea  are  placed  on  the  in- 
dex. Such  "  republican  "  movement  is  on  the  same 
lines  as  the  "  Catholic "  in  Italy  and  Belgium,  only 
marching  in  the  opposite  direction. 

Italy,  the  land  of  free  credit  Co-operation  of  the 
Luzzatti  and  Wollemborg  type,  has  its  o%\ti  little  tale 
to  tell  of  unsuccessful  Government-forced  Co-operation. 
Co-operation  postulates  a  certain  amount  of  economic 
education  and  fitness;  and  it  also  postulates  a  certain 
amount  of  economic  independence.  Such  conditions 
prevail  in  the  Korth  of  Italy,  where  accordingly  Co- 
operation prospers.  They  are  not  to  be  met  with  in  the 
South,  where  distress  among  the  rural  population  is 
great  and  appears  on  that  ground  and  on  others  particu- 
larly to  call  for  Co-operation.  The  remedy  occurring 
to  the  mind  of  the  Government  accordingly  was  to  form 
Co-operation  with  the  help  of  money  provided  by  itself 
and  by  great  public  institutions  such  as  the  Savings 
banks  —  money  to  be  dispensed  by  other  great  insti- 
tutions like  the  Bank  of  Naples  under  its  direction. 


210  CO-OPERATIVE  CREDIT 

Of  course  out  of  such  assistance  it  was  intended  that 
independent  Co-operation  should  in  due  course  grow  up. 
However,  as  a  Government  writer,  Dr.  Baccaglini,  has 
put  on  record  in  a  Government  Report,^  and  as  is  noto- 
rious from  the  comments  of  non-Government  public 
prints,  the  attempt  has  produced  only  very  sparing  re- 
sults. The  explanation  is  that,  as  a  writer  in  the  Co- 
operazione  Rurale  has  pointed  out,  the  Government  has 
been  all  the  time  "  boring  with  the  wrong  tool."  The 
rustics  of  the  South  are  backward,  uneducated,  primi- 
tive—  so  it  is  true.  But,  also,  they  have  no  solid 
ground  to  stand  upon.  They  are  tenants  at  will,  whom 
a  capricious,  arbitrary  and  greedy  class  of  landlords 
dispossesses  at  pleasure,  as  soon  as  some  other  man  of- 
fers a  lira  more  rent.  With  such  negation  of  security 
for  their  existence  you  could  not  expect  these  men  to  co- 
operate. They  have  nothing  to  co-operate  upon! 
What  they  want  first  is  fixity  of  tenure,  at  a  fair  rent. 
That  being  acquired,  with  the  help  of  education  it  is 
probable  that  self-interest  would  lead  them  into  Co-oper- 
ation without  any  forcing.  We  have  the  proof  of  this 
in  the  truly  remarkable  success  of  collective  land  hiring 
(affittanze  collettive)  among  the  very  same  class  of 
people  in  Sicily.  It  gives  them  their  o\vn  holding  for 
a  good  spell  of  time.  And  out  of  Co-operation  in  land- 
renting  appears  to  be  already  growing  up  a  desire  for 
co-operation  in  other  forms,  to  make  that  collective 
renting  more  fruitful  of  results. 

1  "  Credito  Agrario  La  Legislazione  Italiana  sul  Credito 
Agrario.  CVnno  storico  e  critico  dell'  Aw.  AUessandro  Bac- 
caglini.    Roma  1911." 


VARIANTS  AND  DANGERPOINTS  211 

In  Austria  it  is  rather  the  local  Governments  who 
organise  and  befather  credit  co-operation,  than  the  im- 
perial, although  the  latter  helps  materially  with  money. 
Austria  is  not  really  a  compact  empire,  but  rather  a 
congeries  of  heterogeneous  states  under  one  head,  but 
having  for  most  things  their  own  separate  governments, 
legislatures  and  legislation.  The  various  legislatures 
are  very  much  given  to  "  meddling  and  muddling." 
Accordingly  the  Raiffeisen  system  — which  they  have 
all  fixed  upon  as  the  model  type  to  be  cultivated  — is 
there  not  by  any  means  generally  pure,  although  there 
is  some  that  is  good  among  it.  Tliat  befathering  has 
produced  respectable  numbers  of  societies  under  the 
forcing  of  public  officers  working  for  their  promotion, 
but  of  such  societies  not  a  few  regularly  come  to  a  pre- 
mature end.  Apart  from  Credit,  Government  has  lost 
not  a  little  money  in  "  supported  "  co-operative  under- 
takings, which  have  not  lived  long,  as  was  to  have  been 
foreseen.  A  rather  noteworthy  feature  about  Austrian 
Co-operation  is  that  non-German  races  —  considering 
themselves  of  course  under  "  alien  "  Government  —  put 
far  more  "  back  "  into  their  co-operation  than  German, 
acting  with  greater  "  verve  "  and  showing  greater  read- 
iness to  make  sacrifices  for  what  they  consider  to  be 
a  specifically  "  national  "  cause.  That  is  only  an  ad- 
ditional proof  that  to  produce  genuine,  fruitful  co- 
operation push  from  inside  is  required,  not  from  with- 
out. 

Once  more,  in  Eoumania  co-operative  agricultural 
credit  —  of  which  there  is  plenty —  is  altogether  a  crea- 
tion of  the  State,  which  has  shown  itself  so  kind  in  its 


212  CO-OPERATIVE  CREDIT 

benefactions  and  guidance  that  people  now  rather  dread 
the  prospect  of  being  thrown  upon  their  own  adminis- 
tration. It  is  so  pleasant  to  have  the  Central  Bank  to 
provide  money,  inspection,  everything,  and  simply  to 
live  upon  what  through  it  the  Government  gives.  That 
is  possible  in  a  small  country,  where  people  have  been 
long  accustomed  to  obsequious  —  not  long  ago  it  was 
absolutely  servile  —  submission.  But  it  is  not  healthy 
co-operation.  It  creates  nothing  that  will  stand  by  it- 
self and  is  a  burden  rather  than  a  support  to  the  com- 
munity. ISTo  dovibt  the  Government  had  to  take  the 
initiative,  or  nothing  would  have  been  done.  And  now, 
like  Sindbad  the  Sailor,  it  finds  it  difficult  to  shake  off 
the  load  which  it  first  placed  upon  its  own  back. 

It  would  be  idle  to  look  for  precedents  in  such  coun- 
tries as  Spain  and  Portugal,  where  the  movement  is  in 
its  first  infancy  and  cannot  yet  find  its  bearings.  The 
Scandinavian  countries  have  plenty  of  agricultural 
co-operation,  but  practically  no  co-operative  credit  — 
except  for  mortgages.  Isor  yet  could  we  look  for 
much  guidance  to  Eussia,  to  its  to  some  little  extent 
self-governing  dependency  of  Finland,  or  to  Bulgaria, 
notwithstanding  that  in  all  these  three  countries  imi- 
tation Raiffeisen  Co-operation  has  gained  a  very  good 
foothold  and  has  rendered  capital  services.  The  cir- 
cumstances there  are  widely  different  from  those  which 
we  have  here  to  consider.  Co-operative  spirit  is 
strongly  developed  in  Finland  with  its  sturdy,  manly, 
faith-keeping  population.  There,  as  well  as  in  Russia 
proper,  the  districts  of  banks  have  had  to  be  greatly  ex- 
panded, under  orders  from  Government.     That  how- 


VARIANTS  AND  DANGERPOINTS  213 

ever  weakens  the  main  feature  of  Raiffeisen  Co-opera- 
tion. Also,  in  some  part  owing  to  this,  in  Finland, 
shares  have  had  to  be  made  larger,  and  further  inroad 
has  been  made  upon  Eaiffeisenism  by  declaring  the  re- 
serve fund  divisible.  In  Russia  soi-disant  Raiffeisen 
Co-operation  is  still  altogether  under  Government  domi- 
nation. Raifl'eisen's  ideal  aim  has  been  wholly  dis- 
carded. But  attempts  in  the  direction  of  attaining 
emancipation  are  in  progress  which,  it  is  to  be  hoped, 
will  restore  what  has  been  cast  aside.  Economic  condi- 
tions in  rural  districts  have  so  much  advanced  of  late 
years  that  there  is  a  good  promise  of  a  successful  new 
departure.  In  Bulgaria  similar  conditions  prevail, 
with  results  already  noticed.  In  every  one  of  these 
three  countries  has  the  Government  rendered  very  sub- 
stantial help,  but  only  with  the  result  of  ingraining  in 
its  beneficiaries  a  habit  of  dependence. 

In  India  of  course  the  peculiar  conditions  of  the 
country  rendered  State  help  indispensable  for  a  be- 
ginning and  State  laws  as  well  as  local  circumstances 
have  caused  many  departures  in  form  from  the  origi- 
nal Raiffeisen  pattern.  But,  so  far  as  can  be  judged, 
the  right  spirit  has  been  preserved  and  the  system  ap- 
pears to  suit  the  temperament  of  the  Asiatic  races,  both 
Hindoo  and  Mussulman,  perfectly.  Circumstances  in 
that  eastern  country  are  too  different  from  those  which 
we  have  here  to  reckon  with,  for  a  review  of  the  re- 
sults obtained  to  be  quite  in  place.  One  point,  how- 
ever, is  deserving  of  notice.  Before  Co-operation  was 
made  possible  by  the  Act  of  1904,  there  was  terrible 
croaking  in  many  quarters  that  the  thing  must  prove 


214,  CO-OPERATIVE  CREDIT 

impossible.  There  was  no  money,  no  education,  no 
understanding  of  the  thing,  nobody  among  the  millions 
of  illiterates  to  undertake  secretarial  work,  caste  divi- 
sions must  prevent  common  action,  the  usurer  was  too 
powerful,  and  so  on.  The  Act  has  come,  a  handful  of 
Registrars  have  been  set  to  work,  and  there  are  thou- 
sands of  banks  (there  were  over  seventeen  thousand  at 
Midsummer  1915)  doing  business,  in  which  as  yet  as 
good  as  no  loss  has  been  made.  Enormous  good  has 
resulted.  The  country  wears  a  different  aspect.  New 
hope  gilds  the  horizon  for  the  rayat.  And  in  the 
words  of  a  native  Registrar,  "  India  has  never  before 
received  so  great  a  boon."  The  lesson  of  this  is  that 
we  should  not  be  deterred  by  difficulties  such  as  have 
been  asserted  to  exist  to  such  a  degree  as  to  make  the 
enterprise  hopeless  in  every  country  where  subsequently 
Co-operative  Credit  has  taken  root  and  flourished. 
"  Everybody  told  me,"  so  writes  Dr.  Wollemborg,  the 
"  Raiffeisen  "  of  Italy,  "  that  my  undertaking  was  '  im- 
possible.' And  I  silently  recalled  to  mind  that  fine 
saying  of  Carlyle's:  Every  noble  enterprise  is  'impos- 
sible '  at  the  outset."  Co-operative  Credit  has  shown 
that  it  knows  how  to  overcome  "  impossibilities."  But 
it  is  not  State  aid  and  State  guidance  which  have  en- 
abled it  to  overcome  and  conquer.  It  was  the  sturdi- 
ness  of  Co-operators  themselves. 

It  seemed  fit  briefly  to  review  the  various  adaptations 
of  the  Raiffeisen  system  which  have  taken  place.  But 
I  would  not  hold  up  any  of  them  as  a  model  for  follow- 
ing. They  prove,  however  —  which  point  is  of  im- 
portance—  that  the  system  is  highly  adaptable,   and 


VARIANTS  AND  DANGERPOINTS  215 

that  it  will  without  detriment  accept  new  forms  to 
make  it  appropriate  to  new  surroundings.  But  they 
also  prove  that  the  more  faithfully  is  the  original  prin- 
ciple adhered  to,  the  better  results  are  likely  to  be  pro- 
duced, under  both  aspects,  the  economic  as  well  as  the 
ideal. 


CHAPTEE  VIII 

CO-OPEKATIVE    MOETGAGE    CKEI>IT 

The  talk  relating  to  new  credit  facilities  in  America 
is  about  "  Co-operative  Credit."  However  the  main 
tJiought  appears  to  be  pointed  at  Mortgage  Credit. 
The  two  things  are  evidently  considered  as  more  or  less 
identical.  But  in  truth  they  are  not  at  all  so  —  or  at 
most  only  partially.  The  object  of  this  book  is  to  ex- 
plain how  Co-operative  Credit  may  be  organized  and 
practised.  The  principal  task  set  to  the  author  in  the 
present  chapter  accordingly  is  to  deal  with  such  known 
mortgage  credit  as  is  co-operative  and  to  set  forth  its 
best  methods.  However  it  is  impossible  to  approach 
such  subject  without  previously  devoting  at  any  rate 
a  short  space  to  a  hurried  consideration  of  the  relative 
merits  of  co-operative  and  non-co-operative  methods  of 
mortgage  credit. 

Mortgage  credit  of  course  there  must  be  in  any 
country  with  private  property  in  land.  In  these  mod- 
ern days  landowners  cannot  do  without  it.  Landown- 
ers, like  others,  require  credit  to  enable  them  to  carry  on 
their  business  —  let  alone  adjustments  with  co-heirs, 
jointures  and  the  like.  And  it  is  no  more  than  natural 
that,  as  a  suitable  pledge  for  credit,  an  owner  of  land 
should  in  the  first  instance  think  of  his  land  as  a  con- 

216 


CO-OPERATIVE  MORTGAGE  CREDIT       217 

venient  security  to  offer.  It  must  also  appear  perfectly 
proper  that  wherever  debt  is  incurred  for  the  purpose 
of  improving  land,  the  cost  of  such  improvement  should 
be  charged  upon  the  land  itself  and  united  with  it  into 
one  asset.  The  mischief  is  that  the  improvement  of 
land  is  not  by  any  means  in  every  instance  the  true 
object  for  which  the  credit  is  asked.  However  there  is 
the  land ;  it  is  the  property  of  the  demander  of  credit ; 
and,  instinctively,  in  seeking  credit,  the  latter  will  turn 
first  to  this  most  readily  pledgeable  security,  the  tan- 
gible, seizable  asset  of  his  land. 

That  is  all  perfectly  consistent  with  common  sense. 
However,  evidently,  though  the  land  is  there  and  its 
pledgeableness  is  undoubted,  the  method  of  credit  which 
takes  it  as  security  will  have  to  be  systematically  or- 
ganised. Wherever  it  is  not  so  —  as  at  the  present 
moment  is  thought  to  be  the  case  in  the  United  States  — 
the  want  of  organisation  is  keenly  felt.  Xow  in  the 
United  States  organisation  undoubtedly  presents  certain 
difficulties.  There  is  the  shifting  character  of  even 
the  landowning  population  —  which  elsewhere  is 
looked  upon  as  rooted  in  the  soil;  there  is  the  uncer- 
tainty about  the  real  value  of  the  land;  there  is  the 
want  of  touch  between  the  lender  and  borrower ;  there  is 
the  comparative  newness  and  want  of  settled  character 
of  the  country ;  and  there  is  the  standing  difficulty  about 
title.  Hence  those  irregularities  and  hardships  in  the 
use  of  mortgage  credit  which  are  so  frequently  made 
a  subject  of  complaint.  And  hence  also  the  present  cry 
for  organised  mortgage  credit  —  one  result  of  which  is 
to  be  seen  in  the  despatch  of  the  much  spoken-of  "  Amer- 


218  CO-OPERATIVE  CREDIT 

ican  Commission  "  to  Europe.  That  Commission  was 
to  inquire  into  European  methods,  of  which  very  much 
has  already  been  heard  in  the  study  of  practical  eco- 
nomics. Its  inquiry  has  borne  fruit  in  a  number  of 
more  or  less  plausible  proposals  put  forward,  for  the 
adoption  or  else  adaptation  of  those  European  methods. 
!N"o  doubt  Europe,  with  its  earlier  settlement,  with  its 
narrower  limits  alike  of  population  and  of  territory, 
and  with  its  much  more  extended  history  of  appropriate 
legislation,  possesses  the  advantage  —  if  advantage  it 
is  —  of  priority  and  more  voluminous  experience  over 
America.  The  study  of  its  credit  institutions  crowded 
into  a  short  three  months'  inquiry,  has  very  naturally 
produced  some  little  confusion  of  thought,  the  effects 
of  which  are  very  traceable  in  what  has  been  since 
written  and  proposed.  Among  other  things,  it  ap- 
pears to  be  supposed  in  some  quarters  that  the  co-oper- 
ative credit  advocated  by  Schulze-Delitzsch  and  Raif- 
f eisen  —  who  in  truth  would  not  allow  mortgage  credit 
in  their  banks  —  and  the  mortgage  credit  dispensed  by 
the  Prussian  landschaften  —  which  are  the  only  mort- 
gage credit  institutions  to  have  attracted  serious  atten- 
tion — are  the  same  thing;  and  that  the  credit  operated 
by  the  landschaften  is  "co-operative  "  in  the  same  sense 
in  which  the  term  is  applied  to  the  Schulze-Delitzsch 
and  Raiffeisen  banks.  There  could  be  no  greater  and 
more  misleading  mistake.  There  is  indeed  a  '^  sort  " 
of  Co-operation  in  the  practice  of  the  landscJiaften,  in- 
asmuch as  there  is  joint  action  among  a  number  of  per- 
sons, and  as  the  landschaft  is  a  society  of  borrowers. 
But  the  two  institutions  differ  in  more  than  one  essen- 


CO-OPERATIVE  MORTGAGE  CREDIT 


219 


tial  feature  and  no  co-operator  would  recognize  the 
landscJiaften  as  truly  co-operative.  The  fact  that  there 
are  no  ideal  objects  in  landschaft  credit,  such  as  all  co- 
operators  identify  with  "  Co-operation,"  and  that  these 
bodies  pursue  an  object  purely  of  business  and  profit, 
we  may  here  leave  out  of  account.  For  it  is  business 
that  Americans  are  in  this  connection  thinking  of. 
However  a  truly  co-operative  association  wants  to  pos- 
sess a  certain  amount  of  elasticity.  It  wants  to  be 
democratic.  And  it  wants  to  be  free.  JSTow  none  of  these 
qualities  at  all  necessarily  appertain  to  the  landschaft. 
Landscliaften  are  limited  locally,  of  course,  and  to  a 
great  extent  also  with  regard  to  the  class  of  their  bene- 
ficiaries ;  they  are  anything  but  democratic ;  and  so  far 
from  membership  being  in  every  instance  optional,  it 
began  by  being,  and  still  to  a  certain  extent  is,  com- 
pulsory. During  the  six  years  that  I  owned  some  prop- 
erty in  Silesia,  I  was  de  rigueur,  together  with  all  my 
neighbours,  unlimitedly  liable,  in  the  last  resort,  with 
all  that  I  possessed,  for  all  debts  which  the  Silesian 
landschaft  might  incur,  although  I  had  not  a  cent  of 
landschaft  money  invested  in  my  property,  therefore 
received  no  countervailing  benefit.  The  fact  that  to 
some  extent  liability  has  been  limited  —  late  in  the  day 
—  and  that  a  wider  application  has  been  given  to  land- 
schaft business  than  was  originally  contemplated,  lend- 
ing on  peasant  land  being  made  allowable,  alters  very 
little  in  the  general  character  of  the  institution.  "  Al- 
lowable "  does  not  necessarily  mean  "  mainly  prac- 
tised. "  The  figures  quoted  by  Herr  M.  Conrad  in  the 
Jahrhucher    fur  NationaloJconomie  und  Statistik,  in 


220  CO-OPERATIVE  CREDIT 

respect  of  a  landschaft  specially  formed  to  cater  for 
peasant  proprietors,  which  show  that  out  of  about  30,- 
000  peasant  properties  in  the  province  of  West  Prussia 
(upon  which  much  money  has  been  loaned  by  way  of 
mortgages,  for  the  most  part  at  a  high  rate  of  interest 
viz.  5^  per  cent.)  only  4,138  had  found  their  way  to 
the  landschaft  particularly  created  for  them,  prove  that 
there  is  a  great  difference  between  the  two  things.  The 
institution  is  still  in  the  main,  as  it  was  when  Herr 
Conrad  collected  his  statistics,  an  institution  for  the 
large,  privileged  proprietors.  A  member  of  a  land- 
schaft also  does  not,  as  a  member  of  any  truly  co-opera- 
tive society  would  do,  share  in  the  accumulating  bene- 
fits of  the  institution.  In  a  co-operative  society  the  re- 
serve fund  amassed  would  in  part  belong  to  him, 
whether  as  an  indivisible  collective  possession,  or  as  a 
fund  eventually  to  be  shared  out.  He  possesses,  in- 
deed, certain  limited  elective  rights  in  the  selection  of 
some  officers.  But  such  rights  are  very  limited.  The 
organisatory  machinery  is  provided  for  him,  in  the 
main  by  the  political  authority,  which  endows  his  in- 
stitution with  certain  privileges,  to  be  used  under  its 
own  carefully  guarded  supervision,  but  which  claims 
a  big  say  in  return,  and  to  whose  authority  he  is  con- 
strained to  bow. 

1^0  doubt,  in  its  proper  place  the  landschaft  is  a 
useful  thing  and  has  produced  much  good.  The  ques- 
tion is  whether  the  United  States  is  such  a  "  proper 
place  "  for  it.  But  one  curious  feature  in  the  present 
discussion,  by  which  one  cannot  help  being  struck,  is, 
that  all  proposals  for  acclimatising  the  landschaft  in 


CO-OPERATIVE  MORTGAGE  CREDIT       221 

the  United  States  hitherto  made  contemplate  the  sacri- 
fice of  the  very  main  advantage  which  the  landscliaft 
was  designed  to  secure  and  which  might  be  considered 
as  inherently  co-operative,  that  is,  the  advantage  of 
"  bulk."  The  idea  underlying  the  landschaft  is  that 
of  a  large  mass  of  landed  property  brought  together  into 
one  pool,  valued  throughout  according  to  one  common, 
understood  standard,  on  principles  likewise  commonly 
understood  and  accepted,  and  a  correspondingly  very 
large  issue  of  landbonds  also  governed  by  a  connnon, 
well  understood  standard,  which  makes  them  in  eiTect 
current  money  or  at  any  rate  a  widely  recognized  se- 
curity. The  idea  of  competition  is  in  the  landschaft 
expressly  excluded.  However  in  the  United  States  it 
has  been  proposed  to  form,  as  a  corresponding  institu- 
tion, a  number  of  distinctly  competing,  possibly  very 
small  organisations,  down  to  only  $10,000  share  capital. 
That  figure  has  been  adopted  for  the  measures  brought 
forward  in  Washington,  and  also  by  the  Wisconsin  leg- 
islature. That  means  foregoing  all  that  makes  the 
landscliaften  strong. 

However,  among  the  several  instances  of  confusion 
of  thought  generated  by  the  study  applied  to  Eu- 
ropean institutions  of  credit  by  some  not  fully  in- 
formed members  of  the  American  Commission  there 
appears  also  to  be  this,  that  some  at  any  rate  of  the 
American  writers  pleading  in  favour  of  the  landschaft 
as  a  model  to  follow,  do  not  mean  a  landschaft  at 
all  in  the  sense  properly  attaching  to  the  term,  but 
something  formed  in  free  imitation  of  it,  retaining 
characteristics  which  students  of  the  subject  have  long 


222  CO-OPERATIVE  CREDIT 

since  come  to  regard  as  common  property,  but  advisedly 
discarding  others,  which  are  generally  looked  upon  as 
essential  to  the  landschaft,  but  by  no  means  ideal, 
namely  the  very  cumbrous  working  apparatus  —  com- 
pulsory membership  as  a  matter  of  course  —  limitation 
of  benefits,  magnate  rule,  investment  with  judicial  pow- 
ers in  the  matter  of  foreclosure  and  Crown  influence. 
The  particular  features  of  landschaften  which  have  kin- 
dled the  desire  of  some  Americans  to  possess  something 
of  the  same  sort  appear  to  be,  in  the  first  place,  the  ap- 
plication of  the  principle  of  terminable  annuities,  well 
known  in  national  finance,  as  also  in  insurance  business, 
as  a  means  of  gradually  and  —  as  was  thought  —  in- 
sensibly, repaying  a  mortgage  debt ;  and,  next,  the 
raising  of  the  requisite  funds  for  granting  such  credit 
by  means  of  an  issue  of  landbonds  or  debentures,  cor- 
responding in  amount  exactly  with  the  value  of  the 
mortgages  granted,  so  as  to  make  a  share  capital  super- 
fluous. This  feature  likewise  is  practically  copied 
from  national  finance.  The  credit  of  adapting  the  two 
mutually  complementary  methods  to  mortgage  credit 
belongs  neither  to  Frederick  the  Great,  to  whom  it  is 
generally  imputed,  nor  to  his  adviser  in  the  matter, 
Biihring,  a  Berlin  merchant  —  w^ho  thought  out  the 
original  scheme  for  the  landschaften  in  1767,  four  years 
after  the  conclusion  of  the  Seven  Years  War,  to  see  it 
adopted  by  King  Frederick  the  Great  in  respect  of  his 
newly  conquered  province  of  Silesia,  in  17G9  —  but  to 
the  directors  of  a  joint  stock  mortgage  bank  at  Stock- 
holm, which  was  founded  in  1G68.  In  1754  those  di- 
rectors, having  discovered  that  ^  per  cent,  sinking  fund 


CO-OPERATIVE  MORTGAGE  CREDIT       223 

would  in  this  way  pay  off  a  100  crown  debt  in  55  years, 
whereas  mere  annual  instalments  of  the  same  amount 
would  require  200  years  for  the  process,  introduced 
the  principle  of  amortisation  into  their  practice. 
Frederick  the  Great's  landschaften  at  first  simply 
granted  mortgages,  as  of  old,  on  distinct  properties,  the 
only  difference  being  that  the  entire  number  of  mem- 
bers made  themselves  in  the  last  resort  liable  in  un- 
limited liability,  for  repayment,  entering  into  a  collec- 
tive bond.  It  was  some  time  before  the  amortisation 
scheme  was  there  adopted.  It  was  the  landschaft  of 
Posen,  by  the  way,  formed  in  1857,  which  first  made 
amortisation  an  indispensable  condition.  From  that 
centre  the  practice  became  gradually  extended  to  other 
landschaften.  But  even  to  the  present  day  landschaf- 
ten retain  the  right  to  grant  ordinary  mortgages,  for  a 
certain  more  narrowly  limited  term  of  years,  without 
amortisation.  Up  to  the  thirties  of  the  last  century 
there  was  a  right  of  notice  for  repayment.  And  Avithin 
the  memory  of  living  men  landbonds  (pfandbriefe) 
were  still  made  out  in  respect  of  distinct  properties, 
whose  name  appeared  in  the  text.  This  shows  that 
the  scheme,  as  we  now  see  it  practised,  was  not  by  any 
means  a  matter  of  sudden  inspiration,  but  of  gradual 
evolution. 

The  circumstances  which  called  for  dealing  with 
mortgages  in  the  manner  described  were,  once  more, 
precisely  such  as  have  suggested  similar  measures  to 
ministers  of  finance,  namely,  want  of  credit  and  the 
absence  of  a  suitable  institution  for  supplying  it,  so 
that  in  some  way  or  other  the  general  public  had  to  be 


224  CO-OPERATIVE  CREDIT 

directly  appealed  to  for  the  provision  of  the  money  re- 
quired. Now,  as  observed,  these  two  features  —  which 
were  certainly  a  discovery  at  the  time,  and  which  have 
on  the  whole  proved  highly  successful,  having  been  f-rst 
applied  before  there  was  a  landschaft  —  have  long  since 
become  common  property  and  are  applied  with  admir- 
able effect  by  corporations,  which  have  advisedly 
shuffled  off  the  coil  of  a  feudal  and  Crown-ruled  ap- 
paratus and  work  all  the  better  for  it.  Obviously 
such  method  of  giving  credit  requires,  not  an  individual 
capitalist  but  a  permanent  corporation  to  practise  it. 
For  an  individual  could  neither  grant  mortgages  of  the 
sort  required,  nor  float  the  corresponding  bonds. 

It  deserves  to  be  pointed  out  that  in  addition  to  se- 
curing for  the  individuals  concerned  the  two  advantages 
just  mentioned,  the  new  institution  at  the  same  time 
also  distinctly  benefited  the  community  —  directly,  not 
merely  indirectly,  that  is,  by  providing  easier  credit  for 
agriculture.  For  it  "  mobilised,"  as  the  Germans  call 
it  (that  is,  rendered  "  liquid  ")  a  very  substantial  mass 
of  funds  which  in  an  ordinary  mortgage  would  have 
been  "  fixed."  Taking  the  shape  of  landbonds  (pfand- 
hriefe,)  the  mortgage  assumes  a  liquid,  readily  ex- 
changeable and  negotiable  shape;  it  becomes  to  some 
extent  "  money  "  —  "  money  current  with  the  mer- 
chant," such  as  an  ordinary  mortgage  is  not.  A  Ger- 
man landbond  passes  readily  from  hand  to  hand;  and 
the  fact  that  it  can  do  so  renders  it  at  once  a  distinctly 
attractive  security. 

The  new  practice  has  in  general  proved  altogether 
satisfactory;  but  Americans  who  covet  it  will  do  well 


CO-OPERATIVE  MORTGAGE  CREDIT       225 

to  note  that  in  Germany  it  has  not  been  found  all 
Elysian  happiness.  To  the  mind  of  the  German  land- 
owner it  is  disfigured  by  several  drawbacks  which  dis- 
tinctly impair  its  value  and  attractiveness,  quite  apart 
from  its  cumbrous  apparatus.  These  drawbacks  will 
have  to  be  taken  into  account  when  the  main  question 
comes  to  be  dealt  with  —  whether  the  Prussian  method 
suits  American  conditions  better  than  any  other. 

Since  the  Prussian  landschaft  is  in  some  quarters 
explicitly  held  up  as  a  model,  it  may  seem  desirable 
specifically  to  consider  its  peculiar  merits  and  demerits. 
It  was  formed  for  large  landowners  only,  at  a  time 
when  peasants  were  serfs,  and  large  landowners  —  pro- 
prietors of  manors,  rittergutshesitzer  —  were  ipso  facto 
"  estates  "  governing  their  province  and  magistrates  in 
their  own  right.  (I  myself  should  have  been  such  if  I 
had  not  been  disqualified  from  executing  the  functions 
by  being  an  Englishman.)  Under  such  circumstances 
a  good  deal  of  power  might  reasonably  be  entrusted  to 
these  men.  The  general  public  —  other  than  the  pur- 
chasers of  bonds  —  need  not  be  considered.  All  that 
the  legislative  power  —  absolute  at  that  time  —  needed 
to  take  into  account  was  its  own  position.  Accordingly 
it  invested  itself  with  very  considerable  powers,  of  nom- 
ination of  officers  and  supervision  of  business.  That 
point  being  safeg-uarded,  it  might  safely  entrust  the  cor- 
poration newly  formed  with  the  quasi-judicial  powers 
already  referred  to,  namely,  of  compelling  people  to 
serve  as  officers  and  of  foreclosing  without  legal  process 
on  estates  in  arrear  or  failing  to  comply  with  the  rules, 
or  else  —  which  is  in  truth  only  another  form  of  the 


226  CO-OPERATIVE  CREDIT 

same  power  —  in  minor  cases  to  seize  and  administer 
the  property,  like  a  receiver  in  bankruptcy.  The  latter 
is  known  to  be  a  process  far  from  beneficial  to  the  prop- 
erty "  sequestered."  A  popular  rhyme  says :  Se- 
quester machen  here  Nester.  It  also  appeared  per- 
fectly proper  to  provide  the  new  corporation  with  an 
administrative  apparatus  of  a  distinctly  feudal  type, 
copied  from  the  organisation  of  the  "  estates."  Its  of- 
ficers hold  high  rank  in  the  ofiicial  hierarchy  of  the 
country,  from  the  GenerallandschaftsdireJdor  down- 
ward, who  may  be  a  "  Prussian  Excellency."  Its  ad- 
ministering Council,  irreverently  spoken  of  by  Ameri- 
cans as  "  committee,"  is  a  tolerably  august  assembly, 
in  which  it  is  counted  a  privilege  to  have  a  seat.  The 
valuers,  familiarly  described  by  Americans  as  "  ap- 
praisers," hold  high  rank  as  landesdlieste  or  ritter- 
schaftsrcitlie  and  wear  a  special  uniform  on  official 
occasions.  All  this  apparatus  makes  the  laiidschaft 
"  go  down  "  when  exercising  its  peculiar  privileges,  to 
which  common  men  would  scarcely  be  allow^ed  to  aspire. 
It  also  has  helped  to  impress  the  public,  whose  money 
was  sought. 

Tliat  was  a  long  time  ago.  Since  then  the  peasantry 
has  become  emancipated.  Traders  and  manufacturers 
have  found  their  way  into  the  ranks  of  "  manorial  pro- 
prietors " ;  legal  processes  have  been  revised  and  short- 
ened; the  volume  of  available  money  has  greatly 
increased ;  the  world  has  become  a  world  of  business 
and  everything  has  become  modernised.  Also  land  has 
acquired  a  selling  value  distinct  from  its  "  agricultu- 
ral "  value. 


CO-OPERATIVE  MORTGAGE  CREDIT       227 

One  of  the  consequences  of  all  this  is  that  new  land- 
schaften  have  grown  up,  discarding  much  of  what  was 
considered  essential  in  olden  days.  Compulsory  mem- 
bership has  been  dropped,  in  a  few  cases  also  unlimited 
liability  —  at  the  instance  of  the  Wiirttemberg  laiid- 
schaft,  which  first  introduced  the  bold  innovation. 
Peasant  property  has  been  admitted  to  the  privilege  of 
receiving  loans  —  so  far  as  it  might  choose  to  claim  it. 
However,  in  the  main,  the  old  feudal  form  has  been 
retained.  The  landschaft  is  still  generally  speaking 
the  big  man's  preserve.  It  retains  the  powder  of  fore- 
closing without  process  —  which  is  safe  (if  it  is  so  at 
all)  only  in  the  hands  of  the  big  man.  And  its 
method  remains  cumbrous. 

Another  consequence  of  the  change  which  has  taken 
place  in  conditions  is  this,  that  other  organisations  have 
sprung  up  by  the  side  of  the  landschaft,  which  do  prac- 
tically the  same  business,  but  do  it  in  a  greatly  modern- 
ised form.  And  those  institutions  keep  extending 
their  sway,  and  in  truth  outstrip  the  landschaft.  In 
countries  with  conditions  similar  to  those  prevailing  in 
Prussia,  landschaften,  more  or  less  adapted,  have  been 
tried  and  have  more  or  less  succeeded.  So  it  has  been 
in  Sweden,  aristocratic  country  that  it  is,  with  many 
large  landowners,  and  no  organisation  at  the  time  (in 
1836)  to  lend  them  money  in  the  shape  of  long  term 
loans.  (There  was  a  joint  stock  mortgage  bank 
founded  in  1668,  as  we  have  already  seen;  but  at  the 
time  when  the  first  modern  landschaft  was  formed,  in 
Skaane,  there  appears  to  have  been  no  institution  of 
the   kind.)     The   Swedish    landschaften  have   proved 


228  CO-OPERATIVE  CREDIT 

successful,  but  practically  only  as  institutions  for 
large  landowners,  who  have,  by  the  way,  found  it  de- 
sirable to  form  a  central  landschaft  (which  is  really  a 
Government  bank),  as  a  means  of  giving  their  bonds 
the  amount  of  currency  required.  That  once  more 
has  proved  successful,  in  marked  contrast  with  what 
has  happened  in  Germany,  where  the  Central  Land- 
schaft, formed  in  imitation  of  the  Swedish,  twelve 
years  later,  has  proved  an  addled  egg.  So  it  is,  once 
more,  in  Austria  and  Hungary  where,  just  as  in  Prus- 
sia —  indeed  more  so  —  Crown  influence  is  potent  and 
magnate  rule  is  in  the  ascendent.  In  Hungary  the 
magnate  body  ruling  the  concern  (the  founders  and 
their  transferee  successors)  have  in  the  assertion  of 
their  supremacy  gone  the  length  of  forming  themselves 
into  a  close  corporation.  A  similar  society,  formed  in 
Galicia,  more  or  less  after  the  pattern  of  the  Prus- 
sian landschaften,  has  furnished  the  welcome  proof 
that  the  excessive  centralisation  practised  in  Germany, 
which  is  one  of  the  greatest  blots  upon  the  system  and 
helps  to  keep  small  landowners  at  a  distance,  is  not  by 
any  means  indispensable.  It  has  mapped  out  its  wide 
realm  into  a  considerable  number  of  districts,  in  each 
of  which  it  has  placed  an  agent  to  "  get  hold  of  the 
smaller  folk,"  and  has  thereby  secured  for  itself  addi- 
tional business.  But  even  so  it  retains  in  the  main 
the  true  landschaft  character  of  being  a  mortgage  in- 
stitution mainly  for  the  squires.  There  have  been 
some  offshoots  also  in  Germany,  even  one  in  Southern 
Germany  (Wiirttemberg)  —  where  the  same  feudal 
development  in  the  land  system,  which  constitutes  so 


CO-OPERATIVE  MORTGAGE  CREDIT       22a 

marked  a  feature  in  Prussia,  and  in  the  iSTorth  gen- 
erally, and  which  particularly  favours  the  formation 
of  landschaften,  has  not  taken  place.  The  Wiirttem- 
berg  landscJiaft  was  the  first  institution  of  its  kind  to 
substitute  limited  for  unlimited  liability,  marking 
thereby  a  further  advance  towards  a  more  modern  and 
more  businesslike  state  of  things.  And,  of  course,  the 
system  has  been  adopted  in  the  Baltic  Provinces  of 
Eussia,  which  are  in  character  and  habits  German  to 
the  core,  and  very  "  feudal."  The  nobility  (who 
mainly  o^vn  the  broad  acres)  form  a  close  corporation. 
However,  the  success  of  these  landschaften  —  in 
Esthonia,  Livonia  and  Courland  —  as  well  as  of  a 
cognate  institution  formed  in  Poland,  has  remained 
small  in  comparison  with  the  business  done,  not  only 
by  the  great  institutions  endowed  and  directed  by  the 
State,  but  also  with  the  "  mutual  "  institution  organ- 
ised on  different  lines  in  Cherson,  which  has  rapidly 
extended  its  sway  over  three  adjoining  "  governments," 
and  the  joint  stock  mortgage  banks,  which  do  the  larg- 
est business  of  all. 

The  Prussian  landscliaft  cannot  be  said  to  be  gain- 
ing ground,  at  any  rate  in  comparison  with  other  in- 
stitutions. It  is  rather  yielding  the  pas  to  them. 
Even  in  Germany  landschaften  do  only  a  minor  pro- 
portion of  the  business  of  corporate  lending  on  mort- 
gage, to  say  nothing  of  the  large  mass  of  mortgage- 
lending  still  transacted,  as  heretofore,  by  private  capi- 
talists. Of  about  $3,000,000,000  standing  out  in 
land  bonds  in  Germany,  Privy  Councillor  Hermes, 
who  for  a  long  time  was  at  the  head  of  the  Mortgage 


230  CO-OPERATIVE  CREDIT 

Department  in  the  Prussian  Ministry  of  Agriculture, 
and  must  therefore  rank  as  the  most  competent  au- 
thority, not  long  ago  estimated  that  only  $1,000,- 
000,000  was  issued  by  landschaften.  (The  joint  stock 
mortgage  companies  had  at  new  year  1914  alone  about 
$3,000,000,000  outstanding  in  mortgages,)  One 
would  think  that  of  all  institutions  a  landschaft  was 
the  least  easy  to  wreck.  Nevertheless  the  Credit 
Agrarbanh  in  Russia,  formed  rather  pretentiously  on 
landschaft  lines,  with  a  right  of  doing  business  all 
over  European  Eussia,  was  saved  from  going  down  in 
1891  only  by  being  taken  over  by  the  State-endowed 
and  State-directed  "  Bank  for  the  Nobility." 

The  reason  for  such  dropping  behind  of  the  genuine 
landschaft  in  the  race  is  not  far  to  seek.  It  is  not 
only  that  the  landschaft  is  cast  in  a  very  antiquated 
mould,  but  its  organisation  and  processes  are  cum- 
brous and  out  of  date,  and  the  whole  thing  presents 
itself  as  something  of  an  anachronism.  The  very  vir- 
tues of  the  landschaft  seem  to  conspire  against  it,  and 
mark  it  out  for  disappointment.  Its  land  bonds  un- 
doubtedly are  a  success.  They  constitute  a  highly 
appreciated  investment,  such  as  every  capitalist  is 
willing  to  take.  They  have  in  the  stock  and  share 
market  even  overtopped  Government  securities,  and 
their  quotation  is  generally  steady.  However,  the  bor- 
rower has  to  pay  for  this.  In  the  first  place  the  valua- 
tion is  out  of  all  keeping  with  current  land  values. 
From  the  lender's  point  of  view  that  is  a  fault  on  the 
right  side.  However,  the  landschaft  is  a  borrowers' 
association,  designed  for  the  borrowers'  benefit.     There 


CO-OPERATIVE  MORTGAGE  CREDIT       231 

is  much  grumbling  on  this  score.  In  the  next  place, 
that  much  praised  amortisation  by  annual  sinking 
fund  is  not  by  any  means  universally  appreciated.  In 
theory  of  course  it  is  magnificent.  It  is  in  truth  the 
very  raison  d'etre  of  the  landschaft.  However,  the 
borrower  very  naturally  desires  to  have  all  the  money 
that  he  can  obtain  on  his  security,  and  to  have  it  at  as 
cheap  a  price  as  he  can  bargain  for.  Privy  Council- 
lor Hermes,  already  quoted  as  presumably  the  highest 
authority,  states  (in  the  Uandworterhuch  der  Staats- 
wissenscliaften)  that  hut  for  the  compulsion  exercised 
by  the  State  it  could  not  possibly  have  been  carried 
through.  Indeed  urban  holders  of  real  estate,  to 
whose  business  the  Government  wanted  the  same  prac- 
tice to  be  extended,  have  not  without  success  rebelled 
against  it  —  notwithstanding  that  in  its  application  to 
house  property  it  is  really  more  urgently  needed  than 
in  its  application  to  agricultural  property,  inasmuch 
as  such  property  is  more  rapidly  fluctuating  in  value, 
and  owners  are  more  mobile.  But  at  this  point,  not- 
withstanding Government's  steady  pressure,  amortisa- 
tion is  distinctly  receding.  Owners  of  agricultural 
property  submit  to  amortisation  because  they  must. 
But  such  provender  does  not  really  tempt  them  to  the 
landschaft  crib.  And,  in  point  of  fact,  under  land- 
schaft rule  the  provision  misses  the  main  part  of  its 
object.  For  mortgages  are  not  amortised  in  the  way 
now  so  much  praised  up  in  America.  After  a  certain 
time  the  borrower  who  has  been  paying  sinking  fund 
is  entitled  to  increase  his  debt  once  more  by  the  same 
amount.     That  is  only  reasonable;  for  the  security  is 


232  CO-OPERATIVE  CREDIT 

there.  And  as  a  rule  the  borrower  claims  such  right. 
Therefore  the  real  effect  of  amortisation  is,  in  the 
words  of  Consul  Lehmann  —  who  has  made  a  study 
of  the  matter  —  that  amortisation  in  the  best  case  acts 
only  as  a  temporary  savings  bank.  Money  goes  in  and 
is  drawn  out  again.  Also,  as  Dr.  Hermes  explains, 
the  provision  about  amortisation  was  not  by  any  means 
adopted  in  the  borrower's  interest,  but  in  the  lender's 
—  to  keep  his  security  improving.  That  object  like- 
wise is  defeated  by  the  withdrawals. 

With  all  this  in  view  it  cannot  appear  surprising 
that  agricultural  landowners  should  have  very  con- 
tentedly turned  to  other  agencies  for  giving  them 
credit  as,  one  after  another,  such  offered  their  services, 
and  that  they  should,  in  certain  instances,  have  com- 
bined to  organise  for  themselves  somewhat  more  mod- 
ern, freer,  though  equally  useful  institutions  —  in  ad- 
dition to  continuing  to  resort  in  still  goodly  numbers 
to  the  private  capitalist  who  is,  in  Germany,  far  less 
exacting  in  his  requirements  than  corporations.  He 
does  not,  as  a  rule,  insist  upon  a  valuation.  He  finds 
that  he  can  easily  enough  ascertain  sufficient  for  his 
purpose  by  inquiry  from  people  who  know  the  prop- 
erty. There  is  the  land  register;  and  there  is  the  as- 
sessment to  land  tax.  And,  mortgage  loans  being 
common,  previous  indebtedness  affords  a  fair  clue  to 
the  value  of  a  property.  And  the  private  capitalist 
does  not  limit  himself  to  the  "purely  agricultural 
value  "  of  the  property,  but  takes  the  selling  value  into 
account.     For,  after  all. 


CO-OPERATIVE  MORTGAGE  CREDIT       233 

The  intrinsic  value  of  a  thing 
Is  just  as  much  as  it  will  bring. 

Also  he  does  not  bv  any  means  draw  the  line  at  first 
mortgages  or  at  half  the  ascertained  value  of  the  prop- 
erty. Mortgages  are  in  request,  and  money  is  in  re- 
quest. So,  as  long  as  the  value  is  considered  good 
enough,  it  is  not  supposed  to  matter  whether  the  par- 
ticular mortgage  stands  first  or  fourth  or  fifth.  It  is 
true  that  the  private  capitalist  does  nothing  towards 
amortisation.  He  cannot.  But,  on  the  other  hand, 
he  lends  more  money,  which,  like  the  bird  in  the  hand, 
is  more  highly  valued. 

However,  the  most  serious  rivals  to  the  landschaften 
are  not  the  private  capitalists  but  the  joint  stock  mort- 
gage banks,  a  number  of  which  were  formed  some 
decades  ago,  because  landschaften  at  the  time  actually 
could  not  satisfy  all  the  demand  for  mortgage  credit 
put  forward.  In  truth  joint  stock  mortgage  banking 
is  older  than  the  landschaften,  as  is  shown  by  the  in- 
stance already  quoted  from  Sweden,  where  a  mortgage 
bank  was  formed  in  1668.  In  Germany  the  first  mort- 
gage bank  formed  for  its  own  particular  business  was 
the  Kreditanstalt  in  Leipzig,  formed  in  1856.  How- 
ever, the  public  pawm  broking  establishments  in 
Brunswick  and  Altenburg  began  the  practice  severally 
in  1765  and  in  1792.  In  the  later  era  it  was  the 
French  Credit  fonder  that  set  the  tune.  Since  then 
mortgage  banks  have  multiplied  fast  and  extended 
their  business  greatly.  They  can  do  precisely  what 
landschaften  do,  but  they  do  it  on  more  businesslike 


234.  CO-OPERATIVE  CREDIT 

and  less  cumbrous  lines.  And  in  Germany  they  have 
gone  one  step  further;  for  about  fifty  years  ago  they 
established  a  Mortgage  Exchange  at  Berlin,  at  which 
mortgages  are  dealt  in  for  all  the  world  like  stocks  and 
shares  in  the  Stock  exchange. 

There  was,  at  first,  some  prejudice  against  mortgage 
banks.  Landscliaften,  so  it  was  urged,  work  without 
aiming  at  a  profit,  or  obtaining  one.  Mortgage  banks 
distinctly  lay  themselves  out  for  profit-earning,  in  order 
to  satisfy  their  shareholders.  Hence  it  was  argued 
that  they  must  be  dearer  in  the  rendering  of  their  serv- 
ices. As  a  matter  of  fact  they  are  not  so.  And  a 
zealous  pleader  for  the  landscliaften  in  America,  the 
Hon.  Myron  T.  Herrick,  in  his  book  "  Rural  Credits  " 
distinctly  admits  that  they  are  not  so.  "  This  is  due," 
so  he  says,  "  to  the  fact  that  any  advantage  which  the 
landschaft  may  derive  from  the  gratuitous  service  of 
officers  (the  amount  of  which  Mr.  Herrick  overrates) 
and  the  compulsory  service  of  members  is  offset  by  the 
cumbersomeness  of  their  bureaucratic  methods  and  by 
the  superior  energy  of  the  officials  of  the  companies, 
who  are  spurred  on  by  good  salaries  and  the  demand  of 
shareholders  for  dividends."  That  is  quite  true.  But 
there  is  considerably  more.  And  it  will  be  of  some 
interest  to  recall  at  the  present  time,  while  Americans 
are  pondering  the  question,  the  conclusions  which  a 
Russian  Commission  of  Inquiry  arrived  at  in  "1859  and 
the  sequels  to  its  judgment.  Fos,  in  spite  of  —  of 
course  —  very  essential  differences  existing  in  the  con- 
dition of  the  two  countries,  there  is,  after  all,  some 
similarity  in  the  vast  expanse  of  agricultural  land  to 


CO-OPERATIVE  MORTGAGE  CREDIT       235 

be  fertilised  with  money,  and  the  newTiess  of  the  pro- 
posed and  partially  completed  organisation  of  agricul- 
tural credit.  In  both  cases  credit  is  greatly  wanted. 
Landowners  are  throw^ing  out  feelers  for  it  in  all  direc- 
tions. And  the  new  organisation,  such  as  it  is  — 
tentative  at  best  —  is  endeavouring  gradually  to  find 
its  bearings. 

At  the  date  named  the  great  historic  reform  of  the 
emancipation  of  serfs  had  been  decided  upon,  and  in 
view  of  the  impending  heavy  sacrifice  to  be  demanded 
of  landlords,  and  the  creation  of  much  communal  and 
peasant  land  without  the  provision  of  money,  the  ques- 
tion of  new  mortgage  facilities  became  one  of  vital 
importance. 

The  Commission  had  been  appointed,  in  view  of 
the  proposed  abolition  of  the  host  of  institutions  — 
"  Agrarbanken  "  —  maintained  up  to  that  time  by  the 
Government,  to  consider  what  organisations  it  would 
be  most  advisable  to  substitute.  It  had  earlier  at- 
tempts made  by  the  State  —  as  observed,  in  an  elemen- 
tary way  —  before  it,  and  also  the  example  of  the 
Baltic  mutual  societies  formed  in  faithful  imitation  of 
the  Prussian  landscliaften  of  the  older  type.  It  argued, 
very  plausibly,  just  as  people  argue  to-day,  that  the 
work  of  a  mutual  or  co-operative  organisation  being 
done,  not  for  profit,  and  some  of  it  gratuitously,  must 
necessarily  prove  cheaper  in  the  end  than  work  done 
by  a  profitseeking  joint-stock  company.  And  they 
added  to  that  —  which  is  really  far  more  to  the  pur- 
pose —  that  a  non-profitseeking  organisation  naturally 
would  not  tout  for  business,  and  so  detrimentally  stim- 


236  CO-OPERATIVE  CREDIT 

ulate  borrowing,  because  it  would  not  matter  to  it 
whether  it  had  much  business  or  little,  whereas  a  profit 
seeking  joint  stock  company  would  be  sure  to  use  pres- 
sure upon  landowners  to  take  mortgages,  in  order  to 
increase  its  business  and  add  to  its  profits.  (This  is 
not  necessarily  as  sound  reasoning  as  it  seems.  For 
a  nou-profitseeking  corporation  must  have  a  certain 
amount  of  business,  to  make  it  self-supporting  and  it 
will  naturally  seek  to  secure  it.  The  expenses  of  laiid- 
schaften,  according  to  Herr  M.  Conrad's  calculation, 
works  out  —  valuation  and  all  —  at  about  3  per  cent, 
of  the  loan.)  On  the  grounds  stated  the  Russia  Com- 
mission reported  in  favour  of  "  mutual "  organisations 
and,  as  a  means  of  promoting  such,  drafted  model  rules. 
Those  rules  were  not  issued,  because  for  some  reason 
or  other  the  Government  did  not  approve  of  the  Report. 
It  however  practically  endorsed  the  Commission's 
recommendations  and  made  its  influence  felt  in  favour 
of  the  formation  of  "  mutual "  credit  associations. 
Such  associations,  however,  would  not  form.  When 
one  formed,  some  years  after,  at  Cherson  —  being 
destined  to  prove  eminently  successful  —  it  was  on 
other  lines  than  those  recommended.  That  "  mutual  " 
society  —  which  has  extended  its  business  over  three 
adjoining  provinces  —  was  originally  founded  by  the 
zemstvo,  or  provincial  government,  which  provided  a 
fund  for  starting  it.  Once  more  the  Government  used 
its  influence  vigourously  to  promote  the  formation  of 
more  such  "  mutual "  banks,  giving  the  several 
zemstvos  power  to  do  like  that  of  Cherson,  and  en- 
couraging them  to  imitate  its  action.     However  once 


CO-OPERATIVE  MORTGAGE  CREDIT       237 

more  it  stimulated  in  vaiu.  And  the  Bodenkreditan- 
stalt  auf  Gegenseitigheit,  which  had  been  formed  (for 
all  Russia)  in  186G,  advisedly  as  a  landschaft,  on  the 
Baltic  (that  is,  in  substance,  the  Prussian)  plan,  did 
not,  as  already  shown,  live  long,  but  after  twenty-four 
years'  life  allowed  itself  to  be  absorbed  by  the  Govern- 
ment institution,  the  "  Bank  for  the  Nobility."  In 
Russia  indeed,  in  its  backward  state,  which  for  the 
time  keeps  private  initiative  dormant,  the  State  ap- 
pears to  be  in  practice  the  favourite  provider  of  credit. 
Its  "Bank  for  the  Nobility "  —  "  nobility "  in  this 
application  standing  for  the  large  and  medium  land- 
owners —  has  proved  exceedingly  successful.  And  so 
has  the  "  Peasants'  Bank,"  likewise  a  Government  in- 
stitution, originally  established  to  assist  the  newl}^ 
enfranchised  but  moneyless  peasantry  in  the  purchase 
of  their  holdings,  but  now  —  according  to  M.  Apostol 
—  destined  to  become  also  a  mortgage  bank  in  the  or- 
dinary sense  of  the  word.  State  help  by  the  way  —  be 
it  parenthetically  observed  —  with  all  its  general  de- 
fects, has  likewise  in  some  exceptional  cases  proved 
distinctly  beneficent  in  some  of  the  smaller  states  of 
Germany  such  as  Hesse,  Brunswick  and  some  more, 
in  which  on  account  of  the  restricted  area  a  conscien- 
tious Government  is  in  a  position  to  act  in  a  real  sense 
paternally  by  its  subjects,  with  the  help  of  peculiarly 
suitable  machinery,  which  brings  the  officers  of  the  lend- 
ing institmtion  into  close  proximity  to  the  peasant  own- 
ers, so  as  to  facilitate  business  and  inspire  confidence. 
That  is  one  of  its  rare  triumphs.  Prussia  was  de- 
barred from  applying  similar  methods,  not  only  by 


238  CO-OPERATIVE  CREDIT 

reason  of  its  incomparably  larger  size,  but  also  by  a 
paragraph  in  its  Constitution  of  1850,  which  distinctly 
forbids  direct  interference  by  Government.  That  par- 
agraph had  to  be  set  aside  in  18G6,  in  respect  of  the 
newly  conquered  kingdom  of  Hanover  and  the  elec- 
torate of  Hesse,  both  which  territories  already  possessed 
State  interference  institutions  which  could  not  well  be 
suppressed.  In  Russia,  for  the  time  being,  the  State 
appeared  the  most  appropriate  provider  of  credit.  But 
at  the  very  period  spoken  of  joint  stock  mortgage  banks 
cropped  up  and  soon  carried  on  a  roaring  trade  —  so 
roaring,  and  in  consequence,  so  much  to  the  detriment 
of  landowners  (who  were  inveigled  into  taking  unnec- 
essary loans  at  high  rates  of  interest),  that  the  Govern- 
ment felt  itself  called  upon  to  interfere,  limiting  their 
power  and  refusing  to  charter  more.  There  are  at 
present  ten.  But  those  ten  had  on  1st  January  1911 
(the  latest  date  available  for  a  full  comparison)  752,- 
861,803  roubles  outstanding  in  mortgage  debts,  in 
respect  of  an  area  of  24,107,860  dessiatines  (to  which 
should  be  added  154,171,000  roubles  in  Poland,  making 
917,032,803  roubles),  as  compared  with  only  83,915,000 
roubles  standing  to  the  credit  of  three  Baltic  landschaf- 
ten  and  705,660,974  roubles  (in  respect  of  15,995,785 
dessiatines)  to  the  "  Bank  of  the  Nobility  "  (including 
the  absorbed  Bodencreditinstitut),  153,132,176  roubles 
(in  respect  of  3,010,643  dessiatines)  to  the  mutual 
society  of  Cherson,  and  1,005,546,283  roubles  (in 
respect  of  12,950,466  dessiatines)  to  the  "Peasants' 
Bank."  The  two  imitation  landscliaften  in  the  Cau- 
casus, formed  after  the  Baltic  example,  at  Tiflis  and 


CO-OPERATIVE  MORTGAGE  CREDIT       239 

Kutais,  had  7,136,000  roubles  outstanding.  The 
Peasants'  Bank  really  cannot  be  brought  into  com- 
parison with  the  other  organisations,  as  a  mere  refer- 
ence to  the  area  with  the  amount  of  mortgage  debt  upon 
it  sufficiently  indicates.  Its  figures  stand  for  full 
purchase,  not  one-half  or  three-fifths  value  mortgaging, 
of  the  property  concerned,  as  in  the  case  of  the  other 
bodies.  Apart  from  this,  the  Peasants'  Bank  had  in 
its  later  years  vastly  extended  its  business,  by  the  addi- 
tion of  new  branches  of  work,  such  as  the  management 
of  the  Imperial  Apanage  lands  —  to  be  by  it  converted 
into  peasant  holdings  —  and  the  purchase  of  large  es- 
tates to  be  likewise  parcelled  out  in  peasant  holdings. 
In  connection  with  these  transactions  it  was  specifically 
authorized  to  take  over  mortgages  standing  in  the  name 
of  the  Bank  of  the  Nobility  and  joint  stock  mortgage 
banks  to  its  own  name,  and  to  issue,  for  the  satisfac- 
tion of  demands  made  upon  it,  a  large  quantity  of  land 
certificates.  Accordingly  much  of  the  debt  standing 
to  its  credit  is  accounted  for  by  the  transfer  from  other 
institutions  and  there  was  no  diSiculty  about  the  pro- 
vision of  funds. 

By  1st  January  1914  the  amount  standing  to  the 
credit  of  the  N'obility  Bank  had  increased  to  852,120,- 
000  roubles ;  that  due  to  the  Peasants'  Bank  to  1,293,- 
428,130  roubles ;  the  debt  due  to  the  Baltic  landschaften 
had  grown  to  87,876,700  roubles;  that  to  the  Mutual 
Society  of  Cherson  to  202,035,900  roubles  and  that  to 
the  joint  stock  mortgage  banks  to  1,294,174,900  roubles, 
to  which  must  be  added  the  amount  due  to  the  joint 
stock  mortgage  bank  of  Poland,  standing  at  179,874,- 


240  CO-OPERATIVE  CREDIT 

050  roubles  and  bringing  up  joint  stock  claims  to  1,474,- 
874,050  roubles  in  all.  ^  The  mortgage  claims  for  the 
two  societies  of  Tiflis  and  Kutais  had  grown,  very 
rapidly,  to  66,858,500  roubles.  Barring  the  Peasants' 
Bank,  which,  as  observed,  does  not  really  deserve  to 
be  brought  into  comparison,  it  is  accordingly  the  joint 
stock  companies  which  distinctly  "  take  the  cake." 
Between  1904  and  1911  their  business  had  increased  by 
14  per  cent.,  as  compared  with  a  decline  of  18.5  per 
cent,  in  that  of  the  Nobility  Bank  and  a  negligible  in- 
crease in  that  of  the  Landschaften.  The  joint  stock 
companies  have  made  mortgage  business  directed  by 
corporations  popular  and,  by  means  of  competition  — 
to  which  should  be  added  also  the  safeguard  of  Govern- 
ment supervision  —  substantially  reduced  the  rates  of 
interest,  which  used  to  reach  12  per  cent.,  and  even 
more,  10  per  cent,  being  very  common,  to,  generally 
speaking,  4l^  per  cent.,  the  rate  rising  nowhere  above 
6  per  cent.  —  exclusive  of  amortisation,  which  is  of 
course  proportioned  to  the  period  of  running.  That 
period  is  comparatively  short  in  all  these  institutions. 
Nowhere  does  it  exceed  38  or  39  years,  and  as  a  rule 
it  ranges  between  34  and  38. 

The  Eussian  Commission's  argument  —  still  very 
frequently  echoed  elsewhere  in  the  present  day  —  is 
indeed  only  partially  correct.  It  is  quite  true  that 
business  corporations,  working  for  profit,  are  likely  to 

1  The  official  statistics  a  little  obscure  the  facts,  (excusably) 
taking  in  34  "  mutual "  mortgage  societies,  which  are  purely 
urban,  for  house  property,  the  bulk  of  whose  businesses  is 
lumped  together  in  Petrograd,  Moscow  and  Odessa.  These  so- 
cieties show  a  moderate  increase. 


CO-OPERATIVE  MORTGAGE  CREDIT       241 

"  tout  "  for  business  —  since  the  more  business  they 
do,  the  more  profit  are  they  likely  to  earn  —  and  so  to 
incite  landowners  to  borrow  even  improvidently. 
That  danger,  however,  is  likely  to  be  mitigated  by  com- 
petition. But  their  work  distinctly  does  not  prove 
more  costly.  And  the  reason  is  that  in  them  conipetent 
knowledge  of  business  and  business  ways  are  pitted 
against  mere  amateur  work  in  the  landschaften.  The 
men  employed  are  not  "  squires,"  but  skilled  business 
men.  Their  methods  are  business  methods.  And  their 
valuation  is  business  valuation.  The  gentlemen  ap- 
pointed by  the  landschaften  are  very  estimable  gentle- 
men, elected  by  their  fellows,  accordingly  entitled  to 
confidence,  and  as  a  rule  they  know  their  own  district 
sufficiently  well.  But  that  is  for  the  most  part  the 
limit  of  their  knowledge.  They  are  bound  by  set,  hard 
and  fast,  rather  old-fashioned  rules,  by  which  to  value, 
and  they  are  responsible  to  the  landscluift  for  their 
valuation.  Hence  the  valuation  under  the  landscliaft 
invariably  comes  out  extremely  low,  having  no  refer- 
ence whatever  to  the  selling  value  of  the  property.  Xo 
wonder  borrowers  feel  aggrieved.  A  joint  stock  com- 
pany, operating  over  a  wide  district,  in  which  it  can 
cultivate  a  large  business,  is  in  a  position  to  employ 
the  most  skilled  valuers,  familiar  with  valuation  data 
all  over  the  country.  They  do  not  enjoy  the  same 
social  standing.  They  cannot  claim  the  same  honorific 
title  or  dress  for  festive  occasions  in  equally  gorgeous 
uniforms.  But  they  can  value  for  the  whole  country, 
by  a  more  widely  accepted  standard  than  that  of  the 
district.     And  that  adds  distinctly  to  the  circulation 


242  CO-OPERATIVE  CREDIT 

value  of  the  bonds.  Their  principal  is  in  competition 
with  other  companies,  accordingly  they  will  have  to 
value  fairly.  And,  notwithstanding  the  very  modest 
"  compensation "  allowed  to  valuers  of  the  landschaft 

—  which  is  nevertheless  prized  —  the  cost  of  company 
valuers'  work  is,  in  view  of  continual  employment  in 
valuing,  in  the  end  likely  to  prove  less. 

Landschaft  mortgaging,  as  has  already  been  shown, 
is  not  all  of  an  ideal  nature  in  its  results.  In  the  first 
place,  there  is  the  habitual  undervaluing,  which  natur- 
ally enough  landowners  grumble  at.  But  that  can 
absolutely  not  be  helped,  so  long  as  a  landschaft  is  a 
landschaft.  Next  there  is  the  cumbrous  process,  which 
is  likewise  not  palatable  to  borrowers.  Joint  stock 
companies,  private  capitalists  —  and  it  may  at  once  be 
added,  genuinely  co-operative  societies  —  are  not 
equally  bound  by  red  tape.  Then  there  is  the  obliga- 
tion to  repay  which,  like  being  virtuous,  is  admirable 
in  the  theory,  but  has  its  inconveniences  in  practice. 
The  oversight  demanded  by  the  law  and  charters  is 
really  not  excessively  irksome,  since  the  administering 
authorities  naturally  have  a  fellow  feeling  for  borrow- 
ers. The  feudal  character  and  the  very  limited  degree 
in  which  the  landschaft  lending  naturally  commends 
itself  to  small  landowners  —  the  very  class  in  whose 
interest  easier  credit  is  asked  for  in  the  United  States 

—  no  doubt  constitute  a  distinct  defect;  they  are  in- 
separable from  the  landschaft  as  at  present  organised 
— ■  as  is  admitted  —  in  consequence  of  that  body  being 
overcentralised,  and  accordingly  altogether  deficient  in 
diffusiveness  and  touch  with  the  small  proprietors,  who 


CO-OPERATIVE  MORTGAGE  CREDIT       213 

eye  the  distant  corporation,  so  much  above  them, 
askance.  But  they  are  not  a  hardship  to  the  actual 
borrower.  However  they  grate  greatly  on  the  public 
mind.  The  very  small  measure  in  which  advantage  is 
taken  of  laridschaft  lending  by  small  farmers  in  West 
Prussia,  where  the  landschaft  was  particularly  re- 
shaped to  suit  their  requirements,  has  already  been 
noticed.  Perhaps  an  even  more  telling  proof  of  its 
hindering  effect  is  that  met  with  in  the  province  of 
Brandenburg,  in  the  very  heart  and  centre  of  the  work- 
ing sphere  of  Prussian  landschaften.  Dr.  Hermes 
found  that  out  of  about  50,000  properties  entitled  to 
be  lent  upon,  only  5,300  actually  had  at  the  time  made 
use  of  that  privilege.  Nevertheless  it  may  be  assumed 
that  not  a  single  one  of  them  was  unencumbered  with 
mortgages.  That  same  disability  does  not  attach  to 
other  agencies.  They  can  meet  small  ovmers'  require- 
ments well  enough  if  they  like.  State  mortgage  insti- 
tutions such  as  those  already  referred  to  existing  in 
some  smaller  States,  such  as  Brunswick,  Hesse  and  ad- 
joining principalities,  favour  peasant  owners  above 
others.  Joint  stock  companies  can  lend  upon  small 
properties,  if  they  choose.  As  a  rule  they  find  it  too 
troublesome  and  prefer  "hunting  big  game,"  while 
there  is  such  to  be  hunted.  But  the  genuinely  co-op- 
erative mortgage  societies,  of  which  I  shall  still  have  to 
speak,  which  have  cast  off  landschaft  trammels,  lay 
themselves  out  specifically  for  lending  on  small  prop- 
erties, and  with  excellent  effect. 

Once  more,  it  must  be  regarded  as  exceedingly  ques- 
tionable whether  that  right  accorded  to  landschaften. 


244  CO-OPERATIVE  CREDIT 

as  an  integral  part  of  their  working  machinery,  to 
foreclose  without  judgment  is  in  keeping  with  the 
practices  of  modern  time  and  should  be  entrusted  to 
any  corporation  formed  for  business  purposes.  It  is 
scarcely  constitutional.  It  makes  the  complainant  a 
judge  in  his  own  case.  The  landscliajt,  being  a  land- 
scJiaft,  could  scarcely  get  on  without  it ;  and  in  its  own 
case  there  are  circumstances,  already  pointed  out, 
which  may  be  held  to  mitigate  the  danger.  In  Prussia 
the  practice  is  of  so  long  standing  that  people  have  in 
a  manner  got  used  to  it.  But  would  it  "  go  down  "  in 
America  ?  And  where,  in  America,  are  the  men  to  be 
with  safety  entrusted  with  acting  as  judges  in  their 
own  case,  when  the  object  is  to  get  money  repaid  ? 
Wherever  the  trappings  of  feudalism  have  been 
dropped,  such  privilege  is  found  to  be  not  at  all  neces- 
sary. The  joint  stock  mortgages  companies  have  to 
jog  on  without  it  and  manage  very  well  to  do  so.  Even 
the  most  faithful  reproduction  of  the  landscliaft,  the 
Bodencreditinstitut  in  magnate-ridden  Hungary,  has 
had  to  content  itself  with  certain  privileges  ensuring 
more  expeditious  hearing  of  their  cases  by  the  estab- 
lished tribunals.  And  the  Danish  co-operative  mort- 
gage societies  find  a  contractual  engagement  entered 
into  with  their  borrowers  entirely  sufficient.  For 
America  certainly  arrangements  of  this  sort  appear 
preferable  to  that  hard  and  fast  right  to  ex  parte 
foreclosure. 

It  ought  furthermore  to  be  borne  in  mind  that  the 
landschaften,  if  they  have,  on  the  one  hand,  made  much 
money  available  for  agriculture  —  or  rather  for  land 


CO-OPERATIVE  MORTGAGE  CREDIT       245 

owning  —  are  on  the  other  hand  in  the  first  instance  re- 
sponsible for  that  most  regrettable  overburdening  of 
landed  property  with  debt,  which  is  at  present  one  of 
the  most  crying  economic  evils  that  Germany  has  to 
struggle  with.  Xot  that  they  directly  favour  it.  Quite 
the  reverse.  They  draw  the  limit,  as  has  been  seen, 
much  too  low  to  please  borrowers.  But  they  were  the 
first  in  the  field  to  inaugurate  systematic  borrowing. 
The  French  have  a  saying  to  the  effect  that  it  is  only 
the  first  bottle,  which  appears  dear.  Once  that  has 
been  washed  down,  prudential  considerations  go  by  the 
board.  It  is  the  same  with  borrowing  on  real  estate. 
A  little  more  will  make  little  diiference;  and  it  will 
bring  present  relief.  This  evil  ought  not,  indeed,  to 
be  exaggerated.  If,  on  the  one  hand,  it  is  true,  as  the 
head  of  an  important  imperial  department  pointed  out 
to  me,  namely,  that  there  is  scarcely  an  estate  in  Ger- 
many which  is  not  mortgaged,  on  the  other  hand  what 
the  late  Dr.  Buchenberger,  at  that  time  Minister  of 
Agriculture  in  the  Grandduchy  of  Baden,  and  the  orig- 
inatoi?  of  an  inquiry  into  agricultural  conditions  in  Ger- 
many which  has  furnished  most  valuable  information, 
told  me  a  decade  or  two  ago  is  pretty  certain  still  to 
hold  good,  namely,  that  much  of  the  recorded  indebted- 
ness of  real  estate  has  in  reality  been  paid  off,  being 
allowed  to  continue  on  the  record  merely  for  conven- 
ience sake,  in  order  that  in  the  event  of  a  new  loan 
being  required,  the  old  deed  may  serve  for  the  transfer, 
saving  fresh  expense.  But  that  proviso  applies  in  the 
main  to  peasant  property.  And  peasant  property  has, 
as  has  been  shown,  little  enough  to  do  with  landschaf- 


246  CO-OPERATIVE  CREDIT 

ten,  wliicli  cater  rather  for  the  large  landowners  — 
who  have  borrowed  to  such  an  extent  that  now  the 
landscliaften  themselves  feel  it  incumbent  upon  them 
to  interpose  endeavouring  to  cure  the  wound  struck  by 
their  own  "  Achilles'  spear "  with  rust  off  the  same 
weapon.  They  offer  to  issue  "  demortgaging  mort- 
gages," which  are  to  supply  landowners  with  the  addi- 
tional money  that  they  require,  to  clear  off  debt 
contracted  elsewhere,  for  a  shorter  term  and  at  higher 
rates  both  of  interest  and  of  amortisation,  on  condition 
that  the  borrower  engages  himself  not  to  raise  any 
more  money  upon  the  same  property.  It  is  much  too 
soon  yet  to  say  whether  this  rather  ingenious  process, 
which  has  been  tentatively  resorted  to  in  three  provinces 
is  answering  its  purpose.  Landowners  naturally  fight 
a  little  shy  of  it,  because  it  nullifies  the  little  pledge- 
able  security  that  is  left  to  them  and  so  deprives  them 
of  all  further  credit.  From  a  natural  point  of  view 
what  is  particularly  regrettable  about  such  heavy  in- 
debtedness is  that  it  was  not  really  incurred  for  the 
benefit  of  agriculture,  but  for  the  most  part  for  im- 
provident purposes,  to  keep  a  caste,  which  has  become 
almost  an  anachronism,  in  being  a  little  longer  for 
political  and  military  purposes.  And  it  is  the  political 
object  of  maintaining  that  caste  of  ultraroyalists  who 
supply  the  throne  with  a  bodyguard  and  the  army  with 
what  is  considered  the  most  desirable  type  of  officers, 
which  makes  the  Government  so  very  solicitous  for  easy 
land  credit. 

At  one  time,  when  borrowing  upon  land  had  newly 
come  into  vogue,  there  was  such  a  run  upon  landschaf- 


CO-OPERATIVE  MORTGAGE  CREDIT       247 

ten  —  theu  held  iu  the  highest  regard  —  that  they 
could  not  supply  all  the  demand.  That  led  enterpris- 
ing capitalists  to  form  joint  stock  mortgage  companies 
after  the  pattern  —  rather  freely  adapted  —  of  the 
French  Credit  fonder,  which  was  considered  a  great 
success.  Such  companies  were  of  course  not  allowed 
to  organise  entirely  in  their  o^vn  way.  Sufficient  Gov- 
ernment supervision  was  forced  upon  them  to  make 
their  business  prima  facie  safe.  A  proper  balance 
between  mortgages  and  landbonds  issued  was  insisted 
upon.  Mortgages  must  also  not  be  made  to  pay  a 
higher  interest  than  what  was  allowed  to  mortgagees. 
And  inspection,  which  has  in  many  respects  proved 
valuable  —  was  strictly  enforced.  The  safeguards 
adopted  have  not  in  every  case  proved  a  barrier  to 
failure,  because  —  just  as  has  happened  in  Russia  — 
there  was  at  times  reckless  speculation.  Some  sixteen 
years  ago,  when  Germany  found  itself  immersed  in  a 
crisis  owing  to  the  sudden  withdrawal  of  much  British 
money  wanted  at  home  for  the  war  in  South  Africa, 
along  with  some  other  banks  of  good  standing,  four 
pretty  considerable  mortgage  banks  came  to  a  prema- 
ture end.  The  fault  of  this  lay,  not  with  the  funda- 
mental principle  of  the  institution,  but  with  the  insuf- 
ficiency of  the  safeguards  adopted.  Generally  speaking 
the  joint  stock  mortgage  banks  have  done  well.  It  has 
been  found  that  they  can  act  with  greater  freedom  and 
discrimination  than  landschaften,  just  because  they  are 
simple  business  corporations  working  for  profit  and 
nothing  more,  therefore  free  from  red  tape.  That 
profit  has  not  been  excessive.     Competition  has  brought 


248  CO-OPERATIVE  CREDIT 

it  down  to  something  ranging  between  six  and  seven 
per  cent.  The  possession  of  a  share  capital  —  which 
landschaften  do  without,  except  to  a  very  moderate  ex- 
tent in  the  shape  of  an  accumulated  reserve  fund  —  has 
been  found  a  distinct  advantage,  because  it  has  enabled 
the  companies  to  safeguard  themselves  against  the  dan- 
ger —  which  would  presumably  prove  more  formidable 
still  in  America  —  of  "  cornering,"  and  "  bulling  "  and 
"  bearing  "  by  speculators  among  the  public  operating 
with  these  bonds.  It  is  on  that  ground  the  co-op- 
erative mortgage  societies,  formed  still  more  recently, 
have  likewise  wisely  provided  for  such  capital.  A  com- 
pany or  society  without  capital  would  be  at  the  mercy  of 
"  cornerers."  It  is  no  more  than  was  to  be  expected 
that  the  business  most  rapidly  developed  by  joint  stock 
companies  should  have  been  in  mortgages  on  house 
property.  House  property  in  Germany  has  no  la7id- 
schaften  to  borrow  from,  and  its  mortgage  business 
was  at  the  time  least  organised.  Such  business  has  in- 
creased rapidly  and  largely.  Dealing  with  house  prop- 
erty is  considerably  easier  for  a  company  with  an  urban 
centre.  On  agricultural  land  landschaften  were  in 
possession  and  the  powers  that  favour  them  did  not  fail 
to  point  out  to  the  public  that  their  service  is  virtually 
gi'atuitous.  Experience  has  exploded  the  myth  of  its 
being  therefore  cheaper.  And  in  the  South,  where 
feudal  institutions  do  not  exist,  and  consequently  there 
are  (with  one  or  two  exceptions)  no  landschaften,  joint 
stock  companies  soon  managed  to  find  a  market  in  agri- 
cultural business,  which  market  is  extending. 

However  joint  stock  companies  are  not  by  any  means 


CO-OPERATIVE  MORTGAGE  CREDIT       24'J 

the  only  alternative  to  landschaften.  Landschaften 
adopted  a  Jcind  of  co-operative  principle  according  to 
eighteenth  century  conceptions.  ISTearly  a  century  and 
a  half  have  passed  since  then,  and  co-operative  prin- 
ciples have  been  perfected.  It  has  been  found  that 
there  is  no  need  for  "  that  rascal  the  State,"  {der  Backer 
von  Staat)  —  as  the  great  Frederick  called  it,  complain- 
ing of  the  many  demands  made  upon  its  purse  —  poking 
its  nose  into  matters  of  pure  business.  It  never  does 
so  without  spoiling  something  or  other.  And  so,  by  the 
side  of  the  landschaften,  new  co-operative  bodies  have 
sprung  up,  rendering  the  same  services  on  genuinely  co- 
operative lines.  The  motive  which  prompted  to  their 
creation  was  either  this,  that  in  the  particular  circum- 
stances there  was  no  other  body  to  offer  the  same  ser- 
vice, or  else  that,  the  ground  having  been  cleared,  by 
other  agencies,  landowners  came  to  consider  that  they 
might  do  things  more  cheaply  or  more  conveniently  for 
themselves. 

The  Danish  co-operative  mortgage  societies  deserve 
to  be  cited  as  the  best  instance  of  societies  coming  under 
the  first  of  the  two  heads.  Denmark  is  a  country  of 
small  properties,  the  number  of  which  the  Legislature 
has  advisedly  taken  means  to  increase  considerably  at 
the  cost  of  large,  by  giving  special  facilities  for  subdivi- 
sion and  acquisition.  Naturally,  the  small  owTiers  re- 
quired credit ;  because  without  that  their  holdings  were 
worth  nothing  to  them.  And  about  1850,  when  the  new 
departure  came  to  be  decided  upon,  there  was  no  institu- 
tion to  provide  such.  Therefore,  driven  into  a  corner, 
farmers  in  Denmark  resolved  to  take  a  leaf  out  of  the 


250  CO-OPERATIVE  CREDIT 

book  of  their  northern  neighbours  (the  Swedes)  just  as 
the  latter  had,  in  1836,  taken  one  out  of  the  book  of  the 
Prussians,  only  in  Sweden  for  a  very  different  class  of 
owners,  mainly  owners  of  large  estates,  like  the  Prus- 
sian junkers.  Just  as  the  Swedes  had  "  adapted  "  the 
Prussian  landscliaft,  the  Danes  adapted  the  Swedish 
"  society,"  so  as  to  make  it  issue  from  the  process  in  an 
altered  shape.  The  Legislature  in  conferring  the  ne- 
cessary powers  granted  without  demur  what  was  asked 
for  and  what  on  the  surface  seemed  safe,  abstaining 
throughout  —  except  in  later  time  in  two  quite  special 
instances  —  from  affording  assistance  in  money.  I  see 
that  Mr.  Ilerrick  ranks  these  societies  as  a  variety  of 
''  landscliaften."  But  they  are  distinctly  of  a  different 
order.  There  is  a  different  spirit  breathing  in  them. 
All  those  feudal  paraphernalia  of  the  landschaft  have 
been  cast  off,  and  the  feudal  spirit  has  gone  with  them. 
A  Prussian  landowner,  doing  business  with  his  land- 
schaft, feels  as  if  he  were  doing  business  with  a  body 
outside  himself,  having  distinct  interests,  which  lays 
down  conditions  such  as  he  has  to  comply  with,  if  he 
would  have  and  would  retain  the  loan.  The  Danish 
farmer  feels  that  his  society  is  distinctly  his  own,  with 
the  same  interests,  an  institution  created  and  managed 
by  himself  as  fully  as  is  his  co-operative  dairy  or  his 
egg-selling  society,  and  that  it  is  to  his  own  interest  that 
he  should  carry  out  the  conditions  which  he  himself  has 
been  a  party  to  imposing.  A  rather  telling  instance  of 
this  modernised  organisation  is  to  be  found  in  the  fore- 
closure provisions.  Tlie  landschaft  under  its  charter 
has  the  right  ipso  facto  to  foreclose  of  its  own  motion, 


CO-OPERATIVE  MORTGAGE  CREDIT       251 

without  a  judgment  of  the  Court.  The  Danish  society 
is  given  the  power  of  contracting  with  its  borrower  for 
the  same  right,  he  being  a  consenting  party,  who  indeed 
surrenders  all  claim  for  a  stay  of  execution  by  notice  of 
appeal,  but  on  the  other  hand  distinctly  retains  the  right 
to  seek  redress  at  law  in  the  event  of  wrong  being 
shown,  after  the  event.  These  societies  must,  of  course, 
before  presuming  to  act,  obtain  a  charter  from  the  Gov- 
ernment —  which  charter  is  in  every  instance  given  for 
a  certain  marked  off  district,  provided  that  they  can 
ab  initio  show  sufScient  business  to  warrant  their  recog- 
nition, and  if  they  submit  to  the  Government  conditions 
which  in  the  interest  of  lenders  —  that  is,  holders  of 
landbonds  —  include  that  of  rigid  inspection  by  the 
Crown.  The  Crown  also  reserves  to  itself  the  right  of 
suspending  a  society  or  winding  it  up,  should  occasion 
arise.  But,  apart  from  that,  all  is  self-help.  Members 
are  put  upon  their  responsibility.  The  administration 
is  their  own,  and  it  is  democratic.  The  main  points  are 
laid  down  in  the  Government  charter.  Supreme  power 
must  in  all  cases  be  vested  in  the  general  meeting  of 
members;  which  must  be  held  at  least  once  a  year.  That 
meeting  has  to  decide  whether  there  is  to  be  a  new  issue 
of  bonds  and  at  what  rate  of  interest,  and  to  elect  its 
executive  committee  of  three  —  one  of  whom  must  be  a 
skilled  builder  (for  buildings  come  into  account)  — 
and  its  council  of  supervision,  which  stands  above  the 
committee,  of  optionally  from  five  to  nine  members. 
There  are  also  some  other  points  reserved  for  its  judg- 
ment. The  Committee  of  course  carries  out  the  execu- 
tive business  of  the  society,  and  the  Council  supervises 


252  CO-OPERATIVE  CREDIT 

and  holds  the  Committee  to  account,  under  the  inspec- 
tion of  Government,  which  is  a  matter  per  se.  There 
is  a  departure  from  ordinary  co-operative  practice  in 
the  matter  of  voting,  which  however  appears  justifiable 
under  the  special  circumstances.  Voting  is  bj  shares, 
to  this  extent,  that  a  holding  of  10,000  crowns  (about 
$2,600)  entitles  to  one  vote,  another  vote  being  added 
for  every  further  20,000  crowns,  until  the  maximum  of 
five  votes  is  reached.  A  decidedly  objectionable  feature 
in  one  or  two  societies  of  the  sort  is  that  the  bondholders 
are  allowed  presence  and  votes  at  the  general  meeting. 
(This  occurs  also  in  some  of  the  Eussian  "mutual" 
societies,  e.g.,  that  of  Cherson).  To  make  sure  that 
the  bookkeeping  is  accurate  and  true  to  facts,  the  Gov- 
ernment reserves  to  itself  the  right  of  nominating  one 
of  the  two  statutory  inspectors  of  accounts  and  making 
the  nomination  of  the  second  subject  to  its  approval. 
These  two  inspectors  have,  however,  no  voice  in  the 
actual  management.  The  management  is  left  altogether 
in  the  hands  of  the  members  themselves.  Only  in  two 
cases  of  a  very  special  character  —  in  which  business 
had  to  be  taken  up  as  pioneer  work  of  questionable  re- 
munerativeness  —  has  the  State  assisted  with  money. 
In  those  two  cases  it  has,  in  return,  reserved  to  itself 
the  right  of  nominating  the  chairman,  who  becomes  a 
sort  of  watchdog.  Otherwise  the  State  has  assisted  only 
by  remission  of  fees,  of  stamps  and  the  like. 

The  general  rules  for  valuation  are  in  the  Danish 
societies  the  same  as  those  laid  do\vn  for  valuation  for 
public  bodies  investing  in  mortgages.  But  it  is  a  con- 
dition that  in  every  case  there  must  be  two  valuers, 


CO-OPERATIVE  MORTGAGE  CREDIT       253 

and  in  respect  of  some  valuations  the  three  directors 
reserve  to  themselves  the  right  of  carrying  out  an  inde- 
pendent checking  valuation.  Mortgages  may  be  given 
up  to  three-fifths  of  the  ascertained  value  of  the  prop- 
erty. Should  such  mortgage  be  issued,  all  members  are 
made  to  join  in  a  collective  bond  for  liability  up  to  the 
full  value  of  the  mortgaged  property.  Should  the  mort- 
gage be  for  less,  their  liability  becomes  proportionately 
reduced.  But,  whatever  be  the  point  so  fixed,  up  to  that 
point  their  liability  is  collective,  one  for  all,  and  un- 
limited. As  a  matter  of  course  bonds  may  be  issued 
only  to  the  amount  represented  by  the  mortgages  granted. 
But  there  is  no  strict  requirement  to  redeem  the  bonds 
in  precisely  the  same  ratio  that  mortgages  are  paid  off. 
In  some  cases  mortgages  have  been  issued  for  sixty  years 
and  the  corresponding  bonds  made  redeemable  in  sev- 
enty. There  is  also  a  special  clause  authorising  delay 
in  redemption  in  emergency  cases  —  with  the  Govern- 
ment's approval  —  which  expedient  has  been  resorted  to 
only  in  one  instance.  Bonds  must  be  "  negotiable " 
and  may  not  be  issued  for  smaller  amounts  than  100 
Danish  crowns  (say  a  little  over  $25)  each.  Where 
they  are  held  in  tolerably  large  blocks,  say  20,000 
crowns,  in  one  hand,  they  may  at  the  holder's  request 
be  "  inscribed  "  or  "  registered  "  to  his  name.  They 
may  also  otherwise  be  issued  in  certain  names;  but  as 
a  rule  they  are  "  to  bearer."  Although  100  crowTis  is 
the  minimum  limit,  bonds  may  be,  and  are,  issued  to 
much  larger  amounts,  up  to  5,000  crowns  and  possibly 
more.  The  rate  of  interest  is  fixed  according  to  the  state 
of  the  money  market.     There  are  now  3^/2  ^^^  4  per 


254.  CO-OPERATIVE  CREDIT 

cent,  bonds.  iN"©!  very  long  ago  the  3^  per  cents,  were 
quoted  above  par.  The  rate  of  interest  for  mortgages 
corresponds  to  that  for  bonds,  and  amortisation  is  higher 
or  lower,  of  course,  according  to  the  time  allowed  for 
running.  The  bonds  are  issued  in  series,  each  series 
covering  about  ten  years  in  point  of  time,  and  from  50 
to  60  million  crowns  in  amount.  The  series  arrive  at 
maturity  in  chronological  order,  but  are  now  almost 
by  preference  "  bought  in."  It  is  for  the  general  meet- 
ing to  decide  in  what  precise  manner  redemption  is  to 
take  place.  Seeing  that  in  the  matter  of  immediate  lia- 
bility each  series  stands  for  itself,  and  the  borrowers  who 
compose  it  are  responsible,  that  does  not  at  first  glance 
appear  an  altogether  equitable  arrangement.  However 
the  charter  does  not  mention  "  series,"  but  makes  all 
members  equally  responsible  for  default,  at  any  rate  in 
the  last  resort.  Also  in  the  absence  of  share  capital  — 
which  may  prove  an  inconvenience  on  this  ground,  lia- 
bility has  to  be  made  to  lap  over  from  one  series  to 
another,  till  the  new  series  has  acquired  sufficient 
strength  to  stand  by  itself.  That  is  a  weak  point  in 
the  armour  of  these  Danish  societies.  Fortunately  for 
them  there  have  been  no  "  cornerers  "  thus  far  to  take 
advantage  of  it.  Apart  from  such  overlapping  liability, 
something  like  two  per  cent,  of  the  mortgage  is  kept  back 
on  issuing  it,  to  provide  funds  for  carrying  on.  Should 
that  two  per  cent,  not  be  entirely  absorbed  by  outgoings, 
the  balance,  going  automatically  into  the  reserve  fund, 
goes  back  indirectly  to  members,  who  in  addition  are 
required  to  pay  1-10  per  cent,  towards  management 
expenses.     The  reserve  funds  are  not  actually  very  large. 


CO-OPERATIVE  MORTGAGE  CREDIT       255 

There  are  however  some  windfalls  to  increase  them.  It 
is  provided  that  as  soon  as  a  reserve  fund  reaches  4  or  6 
per  cent.,  as  the  case  may  be,  of  the  amount  of  the  lia- 
bilities, its  annual  over  plus  is  thenceforth  to  be  em- 
ployed for  purposes  of  redemption  be  it  by  drawings  or 
be  it  by  buying  in. 

In  this  manner  the  dozen  mortgage  societies  existing 
in  Denmark  have  raised,  cheaply  and  eilectively,  at  the 
rate  of  about  $20,000,000  a  year,  close  upon  $200,000,- 
000,  which  is  more  than  the  entire  isTatioual  Debt  of 
the  little  kingdom.  Considering  the  comparative  pov- 
erty of  the  soil,  that  is  a  large  amount.  And  it  has 
proved  of  most  substantial  help,  more  particularly  to 
small  o\\ming  farmers,  presumably  of  the  same  financial 
status  that  America  is  desirous  of  rendering  assistance 
to.  There  is  not  much  fear  in  their  case  of  the  money 
raised  on  mortgage  being  misemployed.  And  one  fea- 
ture which  ought  to  rank  as  a  special  recommendation 
is,  that  the  landbonds  issued  command  a  ready  market 
even  outside  the  country  itself-  They  are  gladly  bought 
up  in  Germany.  Indeed,  they  are  as  a  rule  issued 
simultaneously  in  Kopcnhagen  and  Hamburgh.  And 
there  is  some  prospect  of  the  market  being  extended 
to  France,  if  indeed,  that  has  not  yet  come  about. 

One  other  point  wants  calling  attention  to.  For 
the  most  part  these  societies  do  business  purely  in  respect 
of  agricultural  property.  But  there  are  a  few  which 
advance  money  also  on  the  security  of  house  property, 
one  exclusively  so.  There  is  no  inherent  reason  why 
owners  of  houses  should  not  join  together  in  precisely 
the  same  way  as  do  owners  of  agricultural  land,  to 


256  CO-OPERATIVE  CREDIT 

obtain  cheap  mortgage  credit  for  themselves.  They  do 
it  in  Eussia.  However  the  business  is  certainly  more 
risky,  because  fluctuations  in  value  are  greater  and  more 
frequent,  and  because  house  property  is  exposed  to  more 
serious  dangers  than  mere  land.  Indeed  the  only  mort- 
gage society  of  the  sort  described  in  Denmark,  which 
has  come  to  grief  and  has  had  to  be  wound  up,  was  one 
which  made  advances  on  houses.  A  great  crisis  oc- 
curring in  1857  produced  general  serious  embarrass- 
ment. The  owners  of  the  houses  pledged  felt  the  pinch 
and  could  no  longer  respond  to  their  engagements. 
By  its  rules  the  society  was  compelled  to  sell  them  up, 
though  in  the  face  of  a  market  necessarily  without  bid- 
ders. The  houses  were  knocked  down  for  a  song  and 
the  society's  balance  sheet  of  1S60-G1  disclosed  a  deficit 
of  a  round  million  (of  crowns),  which  of  course  settled 
the  question  of  winding  up. 

As  a  type  of  the  second  order  of  co-operative  mortgage 
societies,  that  is,  those  which  take  up  mortgage  business 
after  the  way  for  such  business  has  been  planned,  be- 
cause they  hope  thereby  to  gain  some  additional  ad- 
vantage, the  Landwirtschaftlicher  Kreditverein  im  Kon- 
igreich  Sachsen  wall  serve  as  a  good  example.  There 
are  two  other  societies  in  Germany  which  claim  to  figure 
in  the  same  order,  one  in  Bavaria,  the  other  in  Hesse. 
However  both  have  dipped  a  trifle  too  deep  into  the 
State  pocket  and  bowed  a  little  too  obsequiously  to  the 
State  Baal  to  be  entitled  to  rank  as  quite  purely  co-op- 
erative. The  Saxon  society  has  likewise  received  a 
modicum  of  State  assistance ;  but  that  was  only  a  mod- 
erate amount  —  a  matter  of  $187,000  —  as  an  advance, 


CO-OPERATIVE  MORTGAGE  CREDIT       257 

which  was  repaid  within  the  first  four  years  of  its  life. 
Its  only  connection  with  the  State  now  is,  that  a  Com- 
missioner of  the  Government  is  entitled  to  be  present 
at  the  sittings  of  the  governing  body,  not  to  interfere, 
but  to  watch.  Since  in  return  he  certifies  the  bonds 
issued  as  being  covered  by  equivalent  mortgages,  his 
presence  may  be  said  to  be  of  distinct  value,  because  it 
ensures  readier  circulation  of  the  bonds.  The  same  reg- 
ulation holds  good  with  regard  to  the  Bavarian  society ; 
but  that  society  has  received  State  aid,  in  the  shape  of 
an  advance  of  $250,000,  free  of  interest  on  starting,  in 
addition  to  a  further  million  at  three  per  cent.,  and  an 
annual  grant  of  first  $15,000  and  later  $10,000  towards 
its  management  expenses,  which  grant  has  only  recently 
been  withdrawn.  Barring  that  difference,  both  societies 
are  framed  on  pr°tty  much  the  same  lines,  and  their  ob- 
ject is  the  same,  namely,  to  supply  medium  and  small 
landowners  with  mortgage  credit  as  borrowers'  societies, 
at  as  cheap  a  rate  as  is  possible,  unrecallable  on  the 
society's  part  and  amortisable  at  a  rate  corresponding  to 
the  period  of  running.  The  term  "  borrowers '  socie- 
ties "  requires  qualifying.  For  both  societies,  having 
discovered  the  value  of  possessing  a  share  capital,  where- 
with to  float  new  series  and  to  face  the  attacks  of 
"  bulls  "  and  "  bears  "  and  "  cornerers,"  admit  non-bor- 
rowers up  to  a  limited  proportion,  that  is,  dwellers  in 
the  district  "  desirous  of  furthering  the  movement," 
who,  in  Saxony,  must  possess  the  further  qualifications 
of  being  either  agriculturists  by  calling  or  else  land- 
owners in  the  district.  This  really  is  quite  on  a  par 
with  the  practice  of  British  co-operative  productive  soci- 


£58  CO-OPERATIVE  CREDIT 

eties  which  admit  non-working  shareholders  for  the  sake 
of  their  support  and  an  addition  to  their  working  capi- 
tal. Onlj  in  the  lastnamed  case  it  is  becoming  usual  to 
admit  non-workers,  not  as  ordinary  but  as  preference 
shareholders  or  else  debenture  holders.  The  Danish 
societies,  working  without  capital,  are  under  a  necessity 
of  making  holders  of  mortgages  of  one  series  liable  for 
a  certain  time  for  the  liabilities  of  the  next  series,  just 
to  set  that  series  upon  its  legs.  The  two  German  socie- 
ties are  under  no  such  necessity.  They  are  also  in  a 
position  —  the  Saxon  society  at  any  rate  has  benefited 
by  it  —  to  pay  their  mortgage  loans  out  in  cash,  at  the 
quotation  of  the  day,  which  is  a  convenience  to  the  bor- 
rowers. There  is  no  fear  of  the  share  issuing  power 
being  abused.  Of  course  the  societies  make  the  taking 
up  of  shares  obligatory  upon  receivers  of  mortgage  loans, 
in  proportion  to  the  amount  of  each  mortgage.  Thus 
in  the  Saxon  society  a  borrower  of  $1,250  is  required  to 
take  up  a  $12.50  share,  a  borrower  of  $5,000  the  double, 
and  so  on,  till  the  maximum  amount  of  $375  is  reached. 
The  limit  used  to  be  higher  —  $700 ;  and  at  that  time 
there  was  no  limit  to  dividend  upon  capital.  As  the 
shares  paid  well,  shareholders  crowded  in  for  the  sake 
of  the  dividend.  However  the  society  does  not  require 
a  very  substantial  share  capital.  Therefore  the  limit 
was  reduced  to  $375.  In  Bavaria  it  stands  at  $5,000. 
The  formation  of  the  two  societies  was  called  forth  by 
the  same  need.  Bavaria  has  no  landschaften ;  but  it 
has  plenty  of  the  small  kind  of  agriculture,  much  of  it 
on  very  fertile  land.  Saxony  possesses  two  organisa- 
tions of  the  correct  landschaft  type.     Like  other  land- 


CO-OPERATIVE  MORTGAGE  CREDIT       259 

schaften  they  were  foimd  to  be  catering  —  and  to  be 
able  to  cater  —  in  the  main  only  for  large  properties, 
leaving  the  small  farms,  of  which  the  number  is  very 
considerable  —  the  farming  in  Saxony  being  generally 
of  a  high  type  —  unprovided  for.  Accordingly  a  well- 
meaning  public  man,  w^ho  was  eventually  rewarded  for 
his  beneficent  doings  with  the  title  of  "  Excellency,"  in 
1866,  conceived  the  happy  idea  of  applying  the  land- 
scJiaft  principle  in  a  democratised  form.  iS'otwithstaud- 
ing  the  first  set  back  occasioned  by  the  great  wars  which 
followed  its  formation  —  in  1866  and  1870  —  the  soci- 
ety has  done  exceedingly  well  —  so  well  that  on  one  oc- 
casion it  has  been  able  to  surprise  its  members  with  a 
present  of  $66,950  a  year  remission,  by  reducing  the  in- 
terest on  outstanding  mortgages,  from  4  to  31/^  per  cent., 
and  that  the  gates  of  adjoining  states  have  been  readily 
opened  to  it  and  it  now  caters  not  only  for  the  kingdom 
of  Saxony,  but  also  for  the  several  Thuringian  duchies 
and  also  for  adjoining  parts  of  Prussia.  The  Bavarian 
society  had  a  wider  range  open  to  it  from  the  beginning, 
its  country  being  considerably  larger  than  Saxony. 

Both  societies  have  met  with  favours  from  their  sev- 
eral Governments,  but  —  after  those  already  recorded  — 
only  such  favours  as  are  entirely  legitimate.  There  are 
remissions  of  stamp  duties,  fees  and  so  on ;  their  bonds 
are  also  recognised  as  trust  securities  —  but  there  is  no 
privilege  of  summary  foreclosure  without  judicial  hear- 
ing, such  as  to  Anglo-Saxons  must  appear  anachronistic. 

The  organisation  of  these  two  societies  is,  as  ob- 
served, fully  democratic.  Supreme  power  is  in  either 
case  vested  in  the  General  Meeting  of  members,  which 


260  CO-OPERATIVE  CREDIT 

is  by  law  required  to  be  held  at  least  once  a  year.  It 
is  the  General  Meeting  which  elects  the  Council  of 
Supervision  (Board),  consisting,  in  Saxony,  of  fourteen 
members,  in  Bavaria  of  only  five  —  which  is  too  few. 
In  Bavaria  it  is  also  the  General  Meeting  which  elects 
the  Executive  Committee,  consisting  of  four  members. 
In  Saxony  the  duty  of  electing  the  Committee,  composed 
of  only  three  members  —  to  whom,  as  in  the  Schulze- 
Delitzsch  societies,  much  power  is  entrusted  —  falls  to 
the  Council  of  Supervision,  which  —  in  both  cases  — 
stands  above  the  Committee.  The  remarkable  success 
of  the  Saxon  society  is  particularly  attributed  to  the 
happy  selection  of  well  qualified  Committeemen,  which 
appears  to  be  a  result  of  nomination  by  a  smaller  but 
more  highly  competent  body  than  the  General  Meeting. 
As  already  observed,  a  nominee  of  the  Government  in 
either  case  attends  the  sittings  of  the  governing  bodies 
with  a  "  watching  brief  "  and  the  duty  of  certifying 
bonds.  And  of  course  there  is  inspection  of  the 
accounts. 

In  the  Saxon  society,  since  that  was  registered  before 
the  passing  of  the  Co-operative  Act  of  18S9,  which  was 
the  first  measure  to  authorize  limited  liability  in  Ger- 
many, liability  continues  nominally  unlimited.  But 
afi'airs  are  so  managed  that  everybody  knows  that  no  lia- 
bility beyond  the  value  of  the  share  is  likely  to  become 
effective.  In  the  Bavarian  society,  which  was  formed 
much  later,  under  the  1889  Act,  liability  is  limited  to 
the  decuple  of  the  value  of  the  $25  share. 

Both  societies  take  good  care  to  bring  their  ministra- 
tions well  within  reach  of  the  landowners  scattered  over 


CO-OPERATIVE  MORTGAGE  CREDIT       261 

the  country,  by  cutting  up  the  territory  into  compara- 
tively small  sections  and  placing  agents  in  these.  In 
this  way  the  Bavarian  society,  which  operates  over  a 
wide  district,  maintains  an  army  of  not  less  than  about 
a  thousand  agents.  The  Saxon  society  has  not  so  many. 
But  its  district  is  well  provided  with  local  representa- 
tives, whose  duties  consist  in  more  than  simply  sitting 
still  and  waiting  for  applicants.  They  are  to  canvass, 
to  make  the  facilities  offered  by  the  society  known  in 
such  ways  as  are  open  to  them,  to  secure  members ;  and 
they  may  also  collect  savings  deposits.  The  society  has 
taken  power  to  receive  such.  It  does  not  however  set 
much  store  by  this  and  in  preference  canvasses  for  the 
formation  of  Eaiffeisen  societies. 

The  Saxon  society  gTants  mortgages  up  to  three-fifths 
of  the  value  of  properties,  the  Bavarian  only  up  to  one- 
half.  In  either  case  only  first  mortgages  are  agreed  to. 
In  both  cases  however  the  valuation  is  conducted  on 
more  liberal  lines  than  under  laiidschaften.  The  Saxon 
society's  valuation  is  to  be  for  "  agricultural  value  " 
only  —  that  is,  however,  for  such  price  as  a  cultivating 
owner  would  be  held  justified  in  paying,  which  is  more 
than  the  "  agricultural  value  "  of  the  landschaft.  Pro- 
vided that  the  borrower  is  willing,  the  two  societies  also 
accept  the  valuation  of  the  property  for  landtax  as 
standard,  multiplying  the  amount  of  "  assessment 
units  "  by  forty.  Some  landscliaften  likewise  offer  to 
estimate  the  value  of  properties  to  be  mortgaged  by  land- 
tax;  and  the  inconvenience  of  their  having  different 
standards  of  valuation  is  shown  by  the  difference  in  the 
multiplicator  applied  to  that  tax.     Thus  the  Schleswig 


262  'CO-OPERATIVE  CREDIT 

Holstein  landscliaft  multiplies  the  assessment  by  twenty, 
the  West  Prussian  by  tweuty-two.  Should  a  borrower 
refuse  valuation  by  "  assessment  unit,"  valuation  takes 
place  by  the  society's  valuers,  with  due  consideration 
for  any  official  valuation  for  other  purposes  that  may 
exist.  These  valuers  must  by  rule  themselves  be  mem- 
bers of  their  own  society  so  as  to  share  in  the  common 
liability,  and  also  be  "  practical  men."  The  practice 
in  the  Bavarian  society  is  very  similar.  However  that 
society  leaves  itself  somewhat  gi'eater  latitude  in  con- 
sideration of  the  narrower  limit  set,  making  recognition 
of  the  "  agricultural  value"  only  the  "  ordinary  rule." 
It  includes  buildings  in  the  valuation,  which  the  Saxon 
society  excludes  —  they  being  otherwise  provided  for 
under  the  law  of  the  land;  also  standing  timber  and 
industrial  establishments  connected  with  the  property, 
such  as  potato  distilleries,  sawmills  and  the  like.  Val- 
uations are  generally  admitted  to  have  been  fair.  In- 
deed the  marked  success  of  both  societies  testifies  to 
this.  The  valuers  are  not  similarly  "  big  pots  "  as  those 
employed  by  the  landscliaften,  but  they  are  distinctly 
better  suited  to  their  humbler  business,  and  inspire 
greater  confidence  in  those  with  whom  they  have  to 
deal. 

Most  of  the  business  done  is  on  the  amortisation 
principle.  But  both  societies  also  have  power  to  con- 
tract for  shorter  termed  loans,  not  subject  to  amort- 
isation, but  subject  to  notice,  just  like  the  landschaften. 
And  they  may  make  loans  of  either  sort  to  public 
rate-levying  bodies.  Amortisation,  when  it  takes  place 
—  which  is  in  the  gi-eat  majority  of  cases  —  proceeds 


CO-OPERATIVE  MORTGAGE  CREDIT       263 

on  fixed  principles  which  have  come  to  be  understood. 
The  Bavarian  society  allows  amortisation  at  annual 
rates  varying  from  i/^  to  G  per  cent.,  and  issues  tables 
which  show  at  a  glance  how  much  in  each  case  will 
have  to  be  paid  and  for  what  length  of  time.  The 
Saxon  society  as  a  rule  levies  9-10  amortisation,  which 
allows  for  an  additional  1-20  to  be  added  for  manage- 
ment expenses,  to  make  up  a  full  i/o  per  cent. 

As  already  intimated,  in  the  case  of  either  society 
success  has  been  marked  and  the  result  shows  that  where 
circumstances  are  suitable,  the  same  advantages  for 
which  as  a  rule  landschaften  are  prized  are  obtainable 
without  all  the  overdignified  paraphernalia  of  an  anti- 
quated institution  endowed  with  feudal  privileges  and 
indulging  in  anachronistic  red  tape. 

There  is  another  type  of  genuinely  co-operative  mort- 
gage credit  organisation  to  be  met  with  in  Europe  that 
is  deserving  of  mention.  The  Belgian  Boerenhond,  a 
group  of  agricultural  co-operative  associations  of  a  dis- 
tinctly denominational  character  —  strongly  Eoman 
Catholic  —  led  to  a  great  extent  by  its  parish  priests, 
but  otherwise  representing  a  pure  type  of  Kaiifeisen 
Co-operation  —  mainly,  but  not  by  any  means  solely, 
for  credit  —  has  already  been  spoken  of.  That  union 
of  associations,  which  in  matters  of  credit  has  reverted 
to,  or  preserved,  a  position  of  independence  of  State  aid, 
some  years  ago  determined  to  perfect  its  organisation 
by  instituting  a  special  service  for  mortgage  credit,  for 
which  a  great  desire  had  been  expressed  among  its 
members,  in  order  to  meet  as  far  as  possible  all  the 
various  wants  of  its  agricultural  members.     Wisely  and 


264.  CO-OPERATIVE  CREDIT 

prudently  it  resolved  to  keep  such  service  entirely  sepa- 
rate from  its  organisation  for  personal  credit.  The 
funds  and  liabilities  of  the  two  services  are  never  mixed 
up. 

The  idea  upon  which  the  scheme  is  based  is  one 
which  has  long  since  found  great  favour  with  theorists 
and  has  repeatedly  been  recommended  for  execution, 
among  others  by  so  high  an  authority  as  the  late  Dr. 
Buchenberger.  Its  two  main  features  are:  centralisa- 
tion in  the  issue,  decentralisation  in  valuation  and  re- 
sponsibility. It  was  first  suggested  by  the  success  of 
Eaiffeisen  societies.  Here  are  these  societies,  so  it  was 
argued,  strictly  localised  and  composed  of  the  best  mem- 
bers of  the  local  community.  Who  is  there  that  is  so 
competent  to  value  correctly  a  local  landowaier's  prop- 
erty and  to  judge  whether  he  himself  is  under  the 
circumstances  deserving  of  receiving  the  loan  ?  One 
thought  suggesting  this  is  that  frequently  put  forward, 
the  justice  of  which  there  is  no  disputing,  namely, 
that  whereas  the  large  landowner  can  well  afford  to 
negotiate  for  a  mortgage  loan  with  a  centralised  body 
at  a  distance  from  himself,  the  small  man  imperatively 
requires  the  mortgage  institution  to  be  brought  near  to 
his  farm.  If  there  should  be  any  fear  of  the  local 
valuers  favouring  their  neighbours  by  putting  his 
farm  at  too  high  a  value,  that  danger  would  appear  to 
be  effectually  neutralised  by  the  liability  in  respect  of 
the  valuation  attaching  to  the  local  society.  That  is 
the  other  point  in  the  reckoning.  By  such  means 
the  central  society,  which  furnishes  the  funds,  is  to  ob- 
tain  a   collective  guarantee  of  all  local  members,   to 


CO-OPERATIVE  MORTGAGE  CREDIT       265 

shield  itself.  The  loan  itself  would  have  to  be  paid  out 
by  a  central  institution,  which  alone  would  be  in  a 
position  to  issue  landbouds  with  any  prospect  of  suc- 
cess. The  local  society  would  have  in  each  case  to  re- 
port to  headquarters  upon  the  property,  making  itself 
answerable,  at  the  back  of  the  pledge. 

The  Boere7ihond  has  its  central  bank  at  Louvain, 
which  up  to  the  outbreak  of  the  war  was  well  able  to 
provide  the  required  funds  to  be  obtained  by  the  issue  of 
bonds.  Under  the  scheme  in  force  it  is  in  addition  au- 
thorised to  act  directly  in  respect  of  properties  situated 
in  localities  in  which  there  is  no  local  society.  In  such 
cases  the  Central  Bank  values  as  well  as  pays  and  takes 
the  sole  responsibility  —  all  at  a  slightly  higher  rate 
than  where  the  local  society  intervenes.  The  Boeren- 
hond  repays  itself  by  amortisation,  but  has  fixed  the 
time  for  repayment  at  a  much  smaller  number  of  years 
than  do  the  landschafien  and  the  French  Credit  fonder. 
It  holds  —  like  some  people  in  the  United  States  —  that 
every  generation  should  be  made  to  clear  off  its  own 
liabilities,  and  therefore  insists  upon  repayment  within 
twenty-nine  years  at  the  outside,  which  of  course  in- 
creases the  figure  for  the  annual  amortisation. 

It  is  at  the  present  time  still  much  too  soon  to  say 
whether  this  scheme  —  which  was  most  cordially  ac- 
claimed by  the  members  on  its  introduction  —  has  met 
with  sufficient  success  to  warrant  its  adoption  elsewhere. 
The  Boerenbond  itself  appears  satisfied  with  the  modest 
results  thus  far  obtained.  It  is,  the  war  apart,  pecul- 
iarly well  situated  in  the  matter.  "  Catholic  "  capital- 
ists, in  a  country  in  which  "  Catholicism  "  is  a  fighting 


266  CO-OPERATIVE  CREDIT 

force  continually  trying  conclusions  with  Socialism  and 
Unbelief,  are  not  likely  to  allow  an  avowedly  "  Catho- 
lic "  enterprise  to  go  a-begging.  It  is  in  very  truth  one 
of  their  own  fighting  weapons.  They  have  taken  up  the 
bonds  readily  at  a  very  moderate  rate  of  interest,  to 
wit,  31^  per  cent.  But  it  must  be  evident  that  in  the 
open  market  bonds  so  issued  are  likely  to  have  much 
less  of  a  chance.  To  begin  with,  assuming  that  the 
members  of  the  local  Raiffeisen  society  are  the  best 
judges  and  valuers  in  each  case,  and  recognising  the 
fact  that  they  are  bound  in  unlimited  liability  —  which 
supplies,  we  will  say,  a  safe  pledge  —  what  guarantee 
is  there  that  their  society  will  continue,  and  be  equal 
to  its  liability,  to  the  end  of  the  term  ?  Members  may 
go  out  as  they  please  and  the  entire  society  may  decide 
to  wind  up.  The  same  objection  attaches  to  the  Cen- 
tral Bank,  in  which  liability  is  limited,  and  which  may 
likewise  wind  up  long  before  its  bonds  are  redeemed. 
The  seeming  improbability  of  such  an  outcome  cannot 
be  held  sufficient  guarantee  for  a  man  who  parts  with 
his  money.  The  Baiffeisen  society,  so  it  may  be  added, 
is  equal  to  a  certain  amount  of  liability.  However 
that  liability  cannot  be  indefinitely  extended.  The 
horse  that  comfortably  carries  one  man  may  break  down 
under  two. 

A  scheme  very  similar  to  that  of  the  Boerenhond 
was  some  time  ago  submitted  to  the  Union  of  Baiffeisen 
societies,  then  still  at  Neuwied,  by  the  Bhenish  "  Land- 
bank."  Similar  feelers  have  in  fact  been  throAvn  out 
repeatedly  by  landscliaften.  The  "  Landbank "  was 
to  act  as  Central  Bank,  providing  the  money  and  issuing 


CO-OPERATIVE  MORTGAGE  CREDIT       267 

the  bonds.  And  the  local  Eaiffeisen  societies  were  to 
become  its  feeders,  carrying  out  the  valuation  and  mak- 
ing themselves  liable  for  local  losses.  After  some  re- 
flection —  for  the  scheme  had  its  attractive  points  alike 
for  capitalists  and  for  farmers — the  Neuwied  Union 
came  to  the  conclusion  that  in  agreeing  to  such  a  scheme 
its  societies  would  be  overstepping  the  limits  of  their 
proper  province,  and  declined.  Obviously,  in  spite  of 
some  outward  appearance  of  similarity,  the  task  pro- 
posed to  the  societies  would  have  been  of  a  very  dif- 
ferent character  from  that  for  which  they  were  formed. 
Small  men  though  the  members  be,  they  can  undertake 
to  make  themselves  answerable  for  short  term  loans,  be- 
cause they  can  watch  the  borrower  and  day  by  day  con- 
trol the  employment  of  the  loan.  When  it  comes  to 
mortgages,  they  can  do  nothing  of  the  sort.  The  ques- 
tion of  employment  does  not  arise.  There  is  a  liability 
for  a  comparatively  large  sima,  which  may  become  ef- 
fective in  a  lump  all  at  once.  It  must  also  appear 
highly  doubtful  whether  a  body  like  the  Boerenbond's 
Central  Bank,  unsupported  by  zealous  party  feeling, 
such  as  is  willing  to  run  risks,  would  be  able  to  place 
the  bonds  which  it  might  be  ready  enough  to  issue. 

Enough  has  probably  been  said  to  make  it  clear  that 
there  are  a  variety  of  ways  open  for  organising  mort- 
gage credit,  some  of  them  co-operative,  but  failing  to 
fall  into  the  inconveniences  of  landschaft  credit. 
There  may  be  other  ways  still.  At  any  rate  here  is  a 
variety  already,  among  which  to  make  a  choice.  Of 
the  co-operative  schemes  the  Saxon  and  the  Danish  ap- 
pear to  deserve  the  preference.     They  are  co-operative 


268  CO-OPERATIVE  CREDIT 

and  they  are  in  keeping  with  modern  conditions.  If 
they  do  not  possess  all  the  dignity  and  privileges  of  the 
Prussian  landschaften,  they  have  shown  themselves 
fully  as  effective.  Attention  should  more  particularly 
be  called,  incidentally,  to  the  power  which  the  Saxon 
society  has  shown  itself  to  possess,  of  reducing  the  rate 
of  interest  on  running  mortgages.  That  seems  unlikely 
to  happen  in  the  case  of  a  landscliaft. 

There  is  another  point  to  be  taken  into  consideration 
affecting  the  choice  between  a  landscliaft  and  some 
other  organisation.  All  organised  mortgage  credit  of 
such  sort  as  has  been  reviewed  is  rendered  difficult  in 
the  United  States,  as  well  as  in  the  United  Kingdom, 
by  the  absence  of  compulsory  registration  of  title,  on 
which  in  truth  all  the  schemes  reviewed  are  based. 
They  apply  where  there  is  no  difficulty  about  title, 
where  no  searching  into  deeds  and  preparation  of  "  ab- 
stracts "  are  necessary,  but  where  real  estate  is  simply, 
cheaply  and  absolutely  conveyed  by  a  mere  entry  in  the 
register,  as  under  the  Torrens  system.  That  makes 
an  enormous  difference  in  dealing  with  real  property. 
Our  antiquated  English  and  American  system  makes 
conveyance  of  land  the  Tom  Tiddler's  land  of  lawyers, 
which  accounts  for  the  stubborn  opposition  offered  to 
its  improvement.  We  have  made  an  attempt  in  Eng- 
land to  introduce  general  registration  of  title  gradually. 
An  act  of  1897  authorises  County  Councils  to  introduce 
compulsory  registration  within  their  area.  Thus  far 
however  only  one  county  has  taken  advantage  of  such 
authority,  and  that  is  the  wholly  urban  county  of  Lon- 
don.    Such   as  the  existing  state  of  things  is,   how- 


CO-OPERATIVE  MORTGAGE  CREDIT       260 

ever,  a  body  other  than  a  landschaft  (which  could  not 
depart  from  its  hard  and  fast  rule)  whether  it  be  a 
private  capitalist  or  a  co-operative  society  in  the  hands 
of  its  own  members,  or  a  joint  stock  company  governed 
by  a  Board  —  would  have  less  difficulty,  with  its  more 
elastic  organisation,  in  adapting  itself  to  what  prevails 
than  the  landschaft  itself.  Such  lender  may  make  al- 
lowances, as  in  fact  private  capitalists  now  do,  and  be 
satisfied  with  what  appears  to  it  or  him  to  be  con- 
vincing proof  of  the  good  quality  of  the  title.  In  prac- 
tice probably  the  risk  so  incurred  w^ould  not  be  great. 
But  it  would  be  an  enormous  help  to  the  organisation 
of  real  estate  credit,  if  the  United  States  could  adopt 
the  Torrens  system,  as  several  states  have  tried  to  do, 
being  overridden  by  a  decision  of  the  Supreme  Court, 
w^hich  pronounces  such  move  contrary  to  the  Constitu- 
tion. Therefore  if  you  want  to  have  well  organised 
mortgage  credit  in  the  United  States,  I  should  say  that 
the  way  to  that  goal  ought  to  lie  across  the  Torrens 
system. 

Whether  the  United  States  are  economically  ready 
at  the  present  time  for  the  adoption  of  a  co-operative 
scheme  is  another  matter.  And  it  is  the  answer  to 
that  question  obviously  which  must  decide  the  problem. 
To  the  present  writer  the  point  appears  doubtful. 
Those  European  co-operative  schemes  have  found  homes 
in  countries  in  which  there  is  a  thoroughly  settled  rural 
population,  in  which  conditions  of  holdings,  value  and 
the  like  are  also  settled.  There  are  comparatively  few 
changes  there  that  take  place.  ISTo  properties  are 
abandoned.     The  population  is  not  shifting.     Societies 


270  CO-OPERATIVE  CREDIT 

know  that  in  the  main  the  same  membership  will  con- 
tinue for  an  indefinite  time.  Therefore  a  society  could 
count  upon  stability  and  holding  together.  Members 
in  it  are  known  to  one  another  and  keep  in  close  touch 
with  one  another.  Values  have  long  since  found  their 
level.  The  market,  too,  has  become  settled.  Land- 
bonds  have  conquered  a  place  for  themselves,  which  dif- 
ferentiates them  greatly  from  Argentine  cedulas  and 
the  like.  Now  do  these  same  conditions  apply  to  Amer- 
ica ?  The  answer  seems  doubtful.  It  rather  looks  as 
if  the  ground  for  co-operative  mortgage  credit  had  still 
to  be  prepared.  You  want  to  do  the  rough  work  — 
plough  and  harrow,  it  may  be  subsoil  plough  and  drain, 
and  roll,  and  crush  the  clods  —  before  you  can  attempt 
to  sow  the  co-operative  seed.  Co-operation  is  a  most 
effective  instrument.  But  it  has  its  distinctly  delicate 
points.  It  is  absolutely  dependent  upon  assured  safety. 
Then  had  not  the  first  rough  work  best  be  left  to  the 
more  robust  force  of  Capitalism,  which  knows  how  to 
adapt  itself  to  uncertain  circumstances?  The  private 
lender  proportions  the  rate  of  interest  for  which  he 
asks  to  the  risk  which  he  considers  that  he  runs.  A  co- 
operative society  could  not  do  that.  The  capitalist 
also  knows  how  to  adapt  his  demand  for  guarantees  to 
each  several  case.  He  treats  indeed,  every  case  per  se. 
Capitalist  institutions  of  modern  type  have  rendered 
very  useful  service  in  the  matter  of  lending  on  mort- 
gage. They  work  for  profit.  However  the  very  quest 
of  their  profit  has  taught  them  how  to  economise  work- 
ing expenses,  by  the  selection  of  the  fittest  officers  and 
the  study  of  the  most  businesslike  arrangements,  so  as 


CO-OPERATIVE  MORTGAGE  CREDIT       271 

to  enable  them  to  lend  uo  more  dearly  than  landscJiaftcn 
and  with  far  greater  elasticity.  Would  it  not  be  more 
advisable  to  allow  institutions  of  this  sort  —  it  may  be, 
side  by  side  with  iSTational  Banks,  which  have  some 
scope  still  for  engaging  in  such  business  —  to  act  as 
pioneers,  explore  and  prepare  the  ground,  leaving  Co- 
operation to  come  in  later  —  as  it  has  in  effect  done  in 
Saxony  and  Bavaria  —  to  improve,  so  to  put  it,  the 
produce  of  a  more  robust  wild  tree,  by  the  graft  upon 
it  of  sprigs  of  better  plants  ?  It  will  be  for  Americans 
to  decide  according  to  an  intimate  knowledge  of  the 
conditions  of  their  own  country. 


CHAPTER  IX 

IN"    THE    WAKE    OF    CREDIT 

The  direct  effects  which  Co-operative  Credit  has 
produced  in  couutries  in  which  it  is  systematically  prac- 
tised cannot  be  described  as  anything  less  than  mar- 
vellous. The  total  sum  raised  must  be  something  stu- 
pendous. Unfortunately  there  are  no  statistics  that 
can  be  looked  upon  as  at  all  either  complete  or  trust- 
worthy. However  we  know  that  in  Germany  less  than 
a  thousand  Schulze-Delitzsch  banks  have  raised  some- 
thing like  $750,000,000  a  year  by  co-operative  means 
in  steadily  increasing  volume,  to  distribute  among  their 
members,  in  whose  hands  the  money  is  left  to  fructify, 
giving  bread  to  the  eater  and  seed  to  the  sower,  and 
after  that  returning  with  interest  to  the  cash  box  from 
which  it  was  first  taken.  Xo  other  organised  body  of 
co-operative  banks  has  operated  collectively  upon  the 
same  grandiose  scale.  However,  among  those  many 
thousands  of  banks  the  collective  total  must  be  some- 
thing very  considerable.  And  it  has  been  produced  at 
a  very  small  cost,  with  only  a  comparatively  very  small 
share  capital,  securing  the  lender  by  other  and  more 
homely  means  than  tlfQse.in  use  in  the  banking  world, 
the  foundation  of  which  is  capital.     And  co-operative 

banking  has  turned  that  immense  sum  loose  upon  pro- 

272 


IN  THE  WAKE  OF  CREDIT  273 

ductive  emplo^Tnent  just  where  it  was  most  needed  and 
bound  to  produce  the  largest  general  benefit,  for  its 
borrowers  and  for  the  community,  that  is,  at  the  bot- 
tom, or  nearly  so,  of  the  social  pyramid,  where  the  dol- 
lar, added  to  by  labour,  produces  most  largely  in  pro- 
portion to  the  outlay,  and  at  the  same  time  diffuses  most 
comfort  and  contentment.  That  dollar  has  gone  forth, 
providing  employment  for  the  worker,  business  for  the 
tradesman,  agricultural  requisites  for  the  farmer,  en- 
riching the  many  and  adding  to  the  resources  of  the 
State  —  not  gilding  the  mountain  tops  of  millionaire 
wealth,  but  fertilising  the  humble  plain,  and  so  levelling 
the  entire  mass  of  the  population  upward.  At  the 
same  time  it  has  served  as  a  potent  stimulus  to  thrift, 
and  has  emancipated  and  levelled  morally  upward  as 
well,  producing  at  the  same  time  better-to-do  and  better 
men.  It  is  the  cottage  and  the  humble  citizen's  house 
mainly  which  have  benefited. 

That  is  a  glorious  record  indeed.  However  it  is 
not  by  any  means  all  that  has  to  be  set  down  to  the 
credit  of  co-operative  banking.  More  money  in  peo- 
ple's pockets,  better  morals  in  their  character,  must 
necessarily  have  also  meant  better  trade,  a  raised 
standard  of  living,  larger  opportunities  for  leisure, 
general  benefit  for  the  State.  However,  apart  from 
this,  co-operative  banking  —  the  cheville  ouvriere  (let 
us  say,  "  the  main  driving  wheel  ")  of  all  Co-operation, 
as  the  late  Leon  d'Andrimont  has  rightly  termed  it  — 
has  powerfully  incited  to  resort  to  co-operative  methods 
for  other  purposes  than  the  provision  of  money  only. 
It  has  set  up  Co-operation  as  a  potent  machine  for 


274  CO-OPERATIVE  CREDIT 

wealth-making  and  character-raising  in  all  branches  of 
human  employment,  although  not  in  each  to  exactly  the 
same  extent.  The  benefit,  which  in  this  way  it  has 
indirectly  caused,  can  certainly  not  be  reckoned  at  less 
value  than  that  which  it  has  produced  by  direct  means. 
Co-operative  Credit  may  be  said  to  have  a  boon  in  its 
gift  for  every  several  form  of  Co-operation  practised. 
Such  benefit  is  least  observable,  perhaps,  in  the  practise 
of  co-operative  distribution,  the  commerce  of  "  Stores," 
which  has  proved  so  fruitful  a  help  to  the  working 
classes  wherever  it  has  been  allowed  to  strike  root. 
Such  effect,  unfortunately,  is  still  only  little  discerned 
in  the  United  States  where,  somehow,  co-operative  dis- 
tribution has  not  yet  found  the  place  for  itself  in  na- 
tional economics  which  in  a  community  so  largely  com- 
posed of  humble  workers  it  deserves.  Yet  even  on  this 
ground  examination  shows  the  boon  to  be  present,  and 
it  is  not  the  fault  of  banking  if  the  benefit  has  not  been 
rendered  more  substantial.  The  great  mass  of  dis- 
tributive co-operators  have  today  a  little  forgotten  the 
rock  from  which  they  were  hewn  and  the  point  from 
which  they  started,  the  work  which  their  predecessors 
set  themselves  to  do.  With  marked  success  has  come  a 
different  view  of  things,  oblivion  of  the  past,  disregard 
of  those  for  whom  the  Toad  Lane  weavers  constructed 
their  useful  fabric.  The  work  which  they  set  out  to  do 
was,  to  help  the  poor,  to  place  them,  by  means  of  co-oper- 
ation, economically  on  an  equal  footing  with  the 
wealthy.  Those  poor  people  had  no  money.  But  they  had 
custom.  Olit  of  that  custom  they  were  to  manufacture 
money  and  so  become  capitalists.     Now  that  co-opera- 


IN  THE  WAKE  OF  CREDIT  275 

tion  has  prospered,  it  has  become  the  peculiar  preserve 
of  —  these  are  not  my  words,  but  the  words  of  the  late 
General  Secretary's  of  the  British  Co-operative  Union, 
J.  C.  Gray  — "  the  well-paid  artisans."  The  poor  are 
left  outside.  Were  it  not  for  the  courageous  "  Women's 
Guild  "  which,  with  a  woman's  heart,  feels  for  these 
people  and  thinks  of  them,  the  poor  might  be  wholly 
forgotten.  Correspondingly  the  co-operative  war-cry 
now  goes  forth  to  a  different  tune.  The  cry  used  to  be 
for  "  Justice  "  —  equality  with  the  better-to-do.  Now 
it  is,  in  the  w^ords  (much  applauded  at  the  time)  of  the 
Chairman  of  a  very  recent  British  Co-operative  Con- 
gress, for  "  Supremacy."  The  acknowledged  aim  is  no 
longer  to  help  the  poor,  but  to  set  up  a  "  Co-operative 
Commonwealth,"  to  the  rule  of  which  w^illy  nilly  every 
one  is  to  bow.  Why  are  the  poor  left  outside?  One 
reason  is  that  —  as  the  Women's  Guild  has  pointed  out 
—  the  goods  sold  have,  concurrently  with  the  social  and 
financial  uprising  of  those  who  buy  them,  become  too 
pretentious  for  the  poor  and  are  sold  in  too  large  min- 
imum quantities  to  suit  their  tiny  purses.  Another 
reason  is  that  the  poor  still,  as  in  1844,  have  no  ready 
money.  The  Stores  rightly  on  principle  give  no  credit, 
but  sell  only  for  cash.  In  practice,  indeed  this  whole- 
some rule  is  much  disregarded.  The  want  of  the  poor 
is  to  some  degree  met  —  very  faultily  —  by  allowing 
shop  credit  all  the  same  —  or  they  would  be  totally 
precluded  from  purchasing.  But  shop  credit  never 
helps  those  who  are  allowed  to  practise  it.  It  demor- 
alises them  and  so  leads  them  on  to  buy  what  they  will 
not  have  money  to  pay  for.     And  it  utterly  spoils  dis- 


276  CO-OPERATIVE  CREDIT 

tributive  co-operation.  The  late  G.  J.  Holyoake  —  the 
"  grand  old  man,"  as  he  has  been  termed,  of  British 
Co-operation  —  has  repeatedly  pointed  out  to  his  fel- 
low co-operators  at  Congresses  and  other  meetings  that 
what  they  want  to  bring  the  poor  in  is  not  shop  credit 
but  what  he  was  pleased  to  call  "  Mr.  Wolff's  banks." 
Raising  credit  at  a  co-operative  bank  is  a  wholly  differ- 
ent, a  far  more  businesslike,  matter  from  claiming  credit 
at  a  shop.  So  far  from  discouraging  calculation,  it 
compels  to  it  and  makes  people  think  beforehand.  It 
produces  the  same  amount  of  money,  but  at  a  cheaper 
rate,  and  it  does  so  while  bracing  the  borrower  rather 
than  enervating  him.  And  co-operative  bank  credit 
could  not  fail  to  attract  many  more  adherents  to  the 
co-operative  cause,  most  notably  to  distributive  co-op- 
eration, which  to  very  poor  people  is  the  first  stepping 
stone  to  a  rise  in  life.  For  we  know  that  among  the 
poor  the  most  usurious  money  lending  is  rife.  And, 
because  money  is  necessary,  the  moneylenders  are 
thanked  for  the  service  which  they  render  at  an  extor- 
tionate price,  but  which  there  is  no  one  else  to  render, 
high  price  or  low. 

Once  more,  among  distributive  co-operators  the  prac- 
tice is  rightly  becoming  common,  after  British  exam- 
ple, of  maintaining  a  banking  department  in  their 
Central  or  Wholesale  Society.  Such  department  has 
in  Great  Britain  proved  an  excellent  institution.  It 
economises  societies'  money.  It  perfects  the  members 
in  a  knowledge  of  banking.  It  opens  a  wider  ground 
for  the  practice  of  thrift.  And  it  enables  societies  to 
do  collectively  many  things  which  without  it  they  could 


IN  THE  WAKE  OF  CREDIT  277 

not  attempt.  That  department,  however,  is  co-op- 
erative only  in  the  sense  of  being  owned  by  co-opera- 
tors. The  consequence  is  that  for  transmitting  money 
from  one  place  to  another  and  for  cashing  cheques  — 
most  distributive  societies  bank  at  the  said  banking 
department  —  that  department  has  to  employ  the  serv- 
ices of  other,  non-co-operative  banks  at  a  commission; 
in  addition  to  which  it  has  difficulty  in  realising  its 
very  legitimate  ambition  of  becoming  a  deposit  bank 
for  individual  co-operators  as  well  as  for  co-operative 
societies,  so  as  to  gather  more  money  together  for  the 
use  of  the  movement.  Both  objects  might  be  readily 
attained  if  there  were  co-operative  banks  by  the  side 
of  the  Stores. 

Accordingly,  although  one  is  bound  to  subscribe  to 
the  dogma  that  a  distributive  society  should  require  no 
credit  for  itself  —  which  would  give  it  an  insecure 
foundation  —  one  cannot  help  thinking  that  even  for 
Co-operative  Distribution  Co-operative  Banking  would 
be  a  useful  ally — let  alone  that  recruits  for  a  move- 
ment have  to  be  got  hold  of  by  whatever  benefit  most 
attracts  them.  Some  folk  feel  the  want  of  cheap  house- 
hold articles  most  keenly;  others  the  want  of  co-op- 
erative workshops;  others  again  the  want  of  ready 
money.  All  these  services,  meeting  various  wants, 
really  spring  from  the  same  root  and  supplement  one 
another. 

Industrial  Co-operative  Production,  so  one  would 
suppose  at  first  blush,  must  be  the  chief  gainer  by  co- 
operative banking.  It  certainly  gains  by  it,  and  not  a 
little.     But  not  by  any  means  as  much  as  one  would  be 


278  CO-OPERATIVE  CREDIT 

tempted  to  conclude  at  first  suggestion.  The  reason  is 
that  productive  societies  as  a  rule  are  not  in  a  position 
to  offer  quite  the  security  which  a  co-operative  bank 
would  have  to  require,  and  that  they  want  their  money 
for  longer  than  the  co-operative  bank  could  afford  to 
part  with  it.  The  backwardness  of  co-operative  banks 
in  respect  of  making  advances  to  productive  societies 
has  now  and  then  been  made  a  matter  of  complaint. 
Productive  co-operators  contend  that  "  co-operative 
spirit  "  ought  to  lead  co-operative  banks  to  lend  even 
beyond  their  ordinary  limits  of  time  and  security  in 
the  interest  of  "  the  cause."  Some  few  have  done  so, 
in  spite  of  difficulties,  in  the  best  class  of  cases.  How- 
ever a  co-operative  bank  is  under  a  necessity,  more  than 
any  other,  to  keep  its  funds  liquid  and  to  study  safety. 
Even  capitalist  banks  with  public  money  in  their  coffers 
experience  difficulties  in  meeting  productive  societies' 
wants.  That  is  at  the  present  time  made  a  complaint 
against  the  newly  started  banking  institution  at  Eome, 
which  was  expressly  formed  to  assist  co-operative  pro- 
ductive societies,  but  finds  that  a  large  proportion  of 
their  claims  would,  if  allowed,  lead  it  into  danger  and 
so  is  driven  to  refuse  them.  Well  conceived  productive 
societies,  appealing  to  common  interest  and  promising 
success  —  down  to,  even  the  poorly  equipped  navvies' 
societies  in  Italy  in  their  earlier  stages,  when  their 
possessions  really  amounted  to  practically  nothing  at 
all  —  have  not  generally  wanted  for  borrowed  money 
on  this  score.  But  it  is  as  a  rule  private  capitalists 
who  have  provided  such,  rather  from  interest  in  the 
cause  than  as  an  ideal  investment.     And  alike  in  Italy, 


IN  THE  WAKE  OF  CREDIT  279 

as  has  been  shown,  and  in  France,  productive  societies 
have  been  referred  for  loans  to  specially  organised  joint 
stock  banks  —  that  in  France  being  the  property  of  the 
productive  societies  themselves  (with  a  legacy  of  $100,- 
000  left  by  a  philanthropist  and  money  subscribed  by 
capitalist  well-wishers;  the  share  capital  now  stands  at 
more  than  $200,000) — that  in  Italy  being  endowed 
with  $1,600,000  of  public  money. 

On  the  other  hand  Co-operation  in  Agriculture  — 
the  crying  want  at  the  present  time  in  most  countries  — 
may  in  general  be  said  to  owe  its  very  origin  and  exist- 
ence to  Co-operative  Banking.  This  is  certainly,  and 
very  markedly,  the  case  in  Germany,  in  which  country 
co-operation  in  agriculture  is  now  the  most  fully  de- 
veloped and  has  attained  the  most  imposing  proportions. 
Prior  to  the  organisation  of  co-operative  banking,  there 
was  no  co-operation  in  agriculture  to  be  thought  of  in 
Germany.  The  Prussian  Ministry  of  Agriculture  in 
1871  betokened  its  interest  in  the  matter  by  printing 
a  short  article  from  my  pen  reviewing  our  early  be- 
ginnings in  England  as  an  intended  incentive  to  imita- 
tion. But  that  had  no  effect  whatever.  Once 
Raiffeisen  banks  had  —  thanks  in  part  to  the  exam- 
ination of  a  highly  competent  Eoyal  Commission, 
which  issued  a  most  favourable  Report  in  1875  —  es- 
tablished their  reputation,  the  portal  of  success  seemed 
widely  opened  to  such  Co-operation,  and  Agriculture 
rushed  violently  in.  Co-operation  in  Agriculture  be- 
came the  farmers'  favourite  study.  The  command  of 
money  had  planed  the  way.  It  is  on  this  point  that  the 
specific  advantage,  of  the  Raiffeisen  system  became  par- 


280  CO-OPERATIVE  CREDIT 

ticularly  apparent.  The  basis  of  its  credit,  in  contra- 
distinction to  other  systems,  is  not  the  temporary  pos- 
session of  withdrawable  deposits,  but  the  mortgaging 
of  a  permanent,  little  changing,  asset,  to  wit,  the  un- 
limited liability  of  all  members,  upon  which  security 
funds  may  be  raised  at  any  time,  to  be  lent  out  for  long 
periods,  ten  years  and  more.  The  security  is  likely 
always  appreciably  to  exceed  the  amount  raised  upon  it. 
Only  by  such  means  could,  to  state  but  one  instance, 
that  valuable  service  have  been  rendered  to  co-operative 
dairying,  of  providing  the  money  for  starting  the  or- 
ganisation with  its  modern  installation,  the  repayment 
of  the  loan  raised  for  such  purpose  being  made  out  of 
the  proceeds,  at  so  much  for  every  gallon  of  milk  used. 
A  bank  dependent  upon  short  credit  might  have  done 
much  else  that  was  available;  but  it  could  not  have 
done  that.  The  same  comment  applies  to  electric  in- 
stallations and  many  other  things.  But  such  direct 
money  utility  apart.  Co-operative  Credit  serves  very 
visibly  and  powerfully  as  a  stimulus,  and  a  potent  one 
too,  by  reason  of  its  sharpening  the  wits  of  those  who 
practise  it  —  which  it  does  to  a  larger  extent  than  any 
other  form  of  Co-operation  —  and  accustoming  men  to 
co-operation.  Co-operation  learnt  in  credit  is  applica- 
ble to  any  other  f oum.  If  you  want  to  see  the  maximum 
use  made  of  co-operative  methods  in  aid  of  Agriculture, 
you  will  have  to  go  where  it  is  based  upon  credit.  Den- 
mark is  an  intensely  co-operative  country  —  on  the  side 
of  Agriculture.  However  the  forms  in  which  it  prac- 
tises agricultural  co-operation  arc  comparatively  few. 
It  has  no  co-operative  credit  —  except  for  mortgages. 


IN  THE  WAKE  OF  CREDIT  281 

And  it  probably  wants  none.  It  has,  as  its  spokesman, 
M.  Nielssen,  explains  in  an  official  publication  contri- 
buted by  his  Government  to  the  Brussels  International 
Agricultural  Congress  of  1910,  taken  up  the  various 
forms  that  it  actually  practises,  just  as  necessity  pushed 
it  to  them  —  dairying,  when  Prince  Bismarck  closed 
the  accustomed  German  market  against  Danish  corn 
and  thereby  compelled  the  Danes  to  take  to  pasturing 
and  dairying;  bacon-curing  when  Prince  Bismarck's 
successor  once  more  barred  the  way,  for  Danish  pork, 
into  Germany.  In  the  Netherlands,  likewise,  the  agri- 
cultural co-operative  movement  is  independent  of  co- 
operative credit,  which  has  only  come  in,  after  it,  as 
an  offshoot  from  Belgium.  But  there,  once  more, 
agricultural  productive  co-operation  has  remained  con- 
fined, practically,  to  the  one  form  of  dairying,  in  which, 
together  with  the  rearing  of  cattle,  so  intimately  con- 
nected with  it,  it  has  been  carried  to  a  high  degree  of 
development.  It  need  not  be  explained  that  cattle  rais- 
ing and  dairying  are  the  national  agricultural  industries 
of  the  Netherlands,  to  which  it  is  no  mlore  than  natural 
that  methods  which  had  been  observed  to  answer  ex- 
ceedingly well  elsewhere  should  have  been  applied.  In 
Germany,  on  the  other  hand,  under  the  stimulus  of 
banking,  farmers  deliberately  set  themselves  a-thinking 
in  what  new  ways  Co-operation  might  be  impressed  into 
service  to  improve  their  position.  Inquiry  was  let 
loose,  and  all  the  occupied  ground  was  carefully  re- 
connoitred. That  led  to  rather  bold  experimenting, 
which  in  some  instances  resulted  in  loss  —  more  par- 
ticularly when  the  Government  tried  to  help  by  provid- 


282  CO-OPERATIVE  CREDIT 

ing  public  funds.  That,  so  it  is  nov;  frankly  admitted, 
made  people  hopelessly  reckless  in  outlay  and  schemes. 
They  did  not  count  the  cost  of  things,  nor  calculate 
returns.  Thus  it  was  with  respect  to  co-operative 
granaries,  which  were  to  emulate  American  "  eleva- 
tors "  organised  for  rather  a  different  purpose,  namely 
to  fight  "  rings."  The  Prussian  Government  granted 
five  million  marks  towards  this,  of  which  by  far  the 
greater  portion  turned  out  to  have  been  simply  wasted. 
The  result  was  nil  —  or  rather  less  than  nil,  because  it 
gave  co-operative  granaries  a  bad  name.  Thus  it  was 
in  Austria  in  respect  to  vinegrowers'  societies,  for  the 
co-operative  manufacture  and  sale  of  wine.  Under 
such  employment  Government  money  likewise  came  to 
melt  away  into  nothing.  The  failure  of  the  German 
speculation  in  nitrate  deposits  has  already  been  noticed. 
But  after  these  losses,  considerable  as  they  were, 
after  all  a  balance  of  gain  remained.  If  "  cornhouses  " 
were  not  advantageously  to  be  "  run  "  on  the  grandiose 
scale  originally  contemplated,  it  was  found  that,  in 
some  countries  at  any  rate,  they  might  be  very  usefully 
turned  to  account  in  a  less  pretentious  but  more  bus- 
inesslike manner.  Treated  in  this  way  they  serve  very 
well  with  the  help  of  the  banks,  to  equalize  the  price  of 
corn ;  they  enable  the  farmer  to  raise  money  at  the  time 
when  he  wants  it  most,  without  having  to  throw  away 
his  chief  produce  for  a  song;  and  they  have  already 
contributed  to  unifying  the  product,  causing  grain  of 
one  particular  sort,  and  that  the  best  suited  to  the  dis- 
trict, to  be  cultivated  by  members  in  the  area  governed 
by  one  chief  depot.     Thus  grain  growing  —  and  in  a 


IN  THE  WAKE  OF  CREDIT  283 

similar  way  the  growing  of  other  produce,  fruit,  pota- 
toes, beetroot  etc.  —  has  been  decidedly  improved,  to 
the  pecuniary  advantage  of  the  farmers  concerned. 
The  improvement  has  been  particularly  marked  in  the 
cultivation  of  tobacco.  And  there  has  been  a  remark- 
able advance  effected  in  the  employment  of  electric 
power  and  light. 

It  is  only  a  trait  of  human  nature  that,  once  the 
utility  of  Co-operation  in  such  application  has  been 
made  clear,  people  should  have  been  led  to  form  extrav- 
agant hopes  of  large  profits  to  be  netted  in  a  speculative 
way.  For  the  devil  of  covetousness  is  strong  within 
all  of  us.  Experience  has  shown  that  it  is  not  in  Co- 
operation to  gratify  such  desire.  It  will  not  lend  itself 
to  speculation  or  monopoly  or  the  earning  of  extrava- 
gant gain.  But  it  will  secure  and  steady  the  market, 
facilitate  sale  and  to  a  great  extent  e:5?tinguish  the  reign 
of  ups  and  downs. 

But  it  is  not  only  particular  productive  processes  that 
the  command  of  money  raised  by  credit  has  suggested, 
nor  yet  such  easy  interlinking  of  co-operative  services 
as  that  largely  practised  in  Italy,  of  a  co-operative  bank 
being  set  up  by  the  side  of  a  supply  association,  in 
which  bank  farmers  may  obtain  credit  in  the  ordinary 
way,  by  pledging  security,  which  credit  is  afterwards 
assigned  to  the  supply  association,  so  that  the  farmer 
is  placed  in  a  position  practically  to  buy  on  credit  with- 
out any  addition  to  price  and  without  incurring  the 
demoralising  effects  of  shop  credit.  The  supply  asso- 
ciation can  go  on  selling  only  for  cash.  The  two 
transactions  are  kept  wholly  apart.     The  buying  bor- 


£84  CO-OPERATIVE  CREDIT 

rower  knows  beforehand  to  the  cent  what  he  will  have 
to  pay  for  his  money.  And  he  cannot  run  up  a  long 
account.  The  bank  will  see  that  he  redeems  his  debt. 
But  in  truth  after,  and  by,  the  introduction  of  co- 
operative credit  the  whole  atmosphere  of  Agriculture 
becomes  changed.  There  is  more  verve,  more  "  go," 
more  intellectual  activity  perceptible  in  it.  The  power 
to  obtain  money  for  useful  purposes  acts  on  the  agricul- 
tural mind  like  electric  power  on  machinery  and  like 
moisture  upon  sand.  It  urges  it  on  and  makes  it 
inventive,  at  the  same  time  that  it  fertilises  it  and 
enables  it  to  bring  forth  fruit  which  previously  it 
seemed  hopeless  to  look  for.  And  we  may  be  sure 
that  this  is  the  result  of  co-operative  credit.  For  we 
obtain  it  everywhere  where  co-operative  credit  comes  to 
be  introduced,  and  not  long  after,  as  a  regular  sequel 
—  even  in  India.  The  awakening  of  the  rayat  mind 
after  co-operative  credit  had  become  established  in  his 
country  is  something  to  be  studied.  He  now  wants 
to  learn.  He  wants  to  learn  agriculture,  but  at  the 
same  time  to  acquire  general  education.  Societies  have 
made  their  secretaries,  as  a  complement  to  their  secre- 
tarial duties,  teach  members'  children  reading  and  writ- 
ing, etc.  Eayats  inquire  —  for  the  present  in  an  ele- 
mentary way  —  into  agricultural  science.  They  want 
to  cultivate  well,  to  know  how  to  manure,  what  perfected 
machinery  to  employ.  They  want  to  be  able  to  buy 
that  machinery  and  those  useful  fertilisers.  They 
urge  the  authorities  to  provide  the  required  teaching 
for  them.     They  themselves  have  begun  to  form  co- 


IN  THE  WAKE  OF  CREDIT  285 

operative  societies  for  the  purposes  indicated.  The 
whole  outlook  has  thereby  become  improved. 

It  is  the  same  in  Europe.  Co-operative  classes  and 
regular  courses  of  co-operative  training  under  the  guid- 
ance of  co-operative  unions  have  become  common.  The 
French  syndicats  agricoles  have  taken  up  the  teacher's 
ferule  by  the  side  of  those  useful  departmental  "  Direc- 
tors of  Agriculture "  appointed  by  the  Government. 
In  Italy  Co-operation  has  inspired  those  cattedre  am- 
hulanti  which,  "  ambulating "  from  place  to  place, 
teach  the  backward  rustic  how  to  turn  his  scamped 
old-fashioned  calling  into  a  scientific  and  profitable  pur- 
suit and  provide  him  with  the  means  for  doing  so.  For 
their  local  teachers  are  also  their  agents  for  the  sale 
of  recommended  machinery  and  the  like,  and  their 
amanuenses,  to  show  the  peasants  how  to  use  these 
things. 

The  remarkable  development  which  has  taken  place 
in  German  agriculture  within  the  last  generation  is  dis- 
tinctly an  outcome  from  co-operative  credit.  In  co- 
operative credit,  in  the  co-operative  organisation  of 
agriculture,  and  in  rapid  agricultural  progress  Ger- 
many undoubtedly  takes  the  palm  of  countries.  Fifty 
years  ago  its  agriculture  was  undeveloped  and  back- 
ward. England  and  Scotland  were  gladly,  and  rev- 
erently, accepted  by  it  as  its  school  masters,  from  whom 
to  learn,  sometimes  in  a  purely  mechanical  way,  since 
whatever  was  done  in  England  or  Scotland  was 
reckoned  to  be  indubitably  good.  To-day  German  agri- 
culture considers  British  backward.     That  is  in  some 


286  CO-OPERATIVE  CREDIT 

very  important  respects  an  ntter  mistake;  for  the 
critics  fail  to  appreciate  the  very  substantial  differ- 
ences prevailing  between  circumstances  in  one  country 
and  the  other.  But  it  shows  that  under  the  stimulus  of 
Co-operation,  formerly  studying  to  follow  others,  Ger- 
man agriculturists  have  long  since  learnt  to  think  for 
themselves,  to  work  out  their  own  schemes,  suited  to 
their  own  conditions.  In  respect  of  adaptability,  of 
suiting  cultivation,  whether  rotational  or  single  crop- 
ping, to  varying  climates,  surroundings  and  circum- 
stances generally,  they  probably  stand  topmost  among 
nations.  Their  land  brings  forth  by  quarters  where 
formerly  it  used  to  produce  bushels.  And  were  it  not 
for  their  land  system,  with  its  pretension  to  keep  up 
worn-out  feudal  institutions,  "  to  supply  the  army  with 
officers  " —  of  the  Zabern  sort  —  and  the  Throne  with 
a  "  loyal  "  bodyguard,  and  for  the  systematised  tempta- 
tion offered  to  run  hopelessly  into  debt  by  mortgaging 
the  land,  simply  "  to  keep  up  appearances,"  under  an 
agricultural  aspect  the  position  of  German  landowners 
would  be  as  good  as  any  to  be  met  with  on  the  globe. 

Progress  has  not  been  equally  marked  either  in 
France  or  in  Italy.  But  it  is  there.  Twenty-three 
years  ago,  when  exploring  the  rich  Lauragais,  the  origi- 
nal "  Cocaigne  "  of  imaginative  fancy,  a  storehouse  of 
fertility  shone  upon  by  a  stimulating  sun,  I  ventured 
apologetically  to  suggest  to  the  departmental  director 
there:  "  But  your  cultivation  is  rather  backward  here." 
"  Oh,"  replied  he,  "  we  still  live  in  the  age  of  the  old 
Eoman  plough."  He  could  not  say  that  now.  The 
rich  lowlands  of  Lombardy,  with  their  masterful  irriga- 


IN  THE  WAKE  OF  CREDIT  287 

tion  and  their  nine  or  ten  cuts  of  grass  per  annum,  had 
not  much  to  learn  from  Co-operation.  But  elsewhere 
in  Italy  Co-operation  has  proved  of  distinct  value,  and 
under  its  sway  Italy,  which  has  vainly  laboured  to  vie 
with  England  and  Belgium  as  an  industrial  country, 
now  stands  in  a  good  way  of  recovering  its  ancient 
reputation  of  the  time  when  the  Campagna,  bare  and 
feverbreeding  at  present,  was  the  smiling  and  peopled 
granary  of  its  country,  and  the  now  scorched  plain  of 
the  South  brought  forth  between  the  still  standing, 
shady  and  rain  attracting  forests,  rich  harvests  of 
wheat.  The  effect  of  this  is  distinctly  to  be  seen  in  the 
rather  greedy  way  in  which  co-operators  of  the  peasant 
and  rural  labourers'  class  cry  out  for  "  credit,"  even 
where  to  give  credit  would  be  a  rather  risky  proceeding. 
But  at  any  rate  they  have  learnt  to  understand  and 
appreciate  the  value  of  credit  as  a  productive  and 
wealth-bringing  agent.  Even  Denmark  has  not  cut 
itself  off  from  co-operative  credit  as  much  as  might  be 
judged.  There  are  many  in  that  country  who  hold 
that  co-operative  credit  would  prove  useful  there.  And 
under  a  former  ]\Iinistry,  not  long  ago,  an  inquiry  was 
ordered  by  Parliament,  and  held,  and  five  million 
Danish  crowns  were  actually  voted  to  finance  a  begin- 
ning. A  change  of  Ministry  upset  the  scheme.  The 
advance  in  agriculture  made  in  the  erstwhile  principal- 
ities, now  kingdoms,  of  the  Balkan  peninsula  stands  a 
credit  to  the  same  account.  And  even  in  Egypt  the 
introduction  of  credit,  non-co-operative  as  it  was,  in- 
spired to  the  fellaheen  thoughts  of  co-operative  organi- 
sation for  selling  their  cotton  as  well  as  for  securing 


288  CO-OPERATIVE  CREDIT 

agricultural  requisites,  the  demand  for  which  appears 
to  have  outgrown  the  capacities  of  the  National  Agri- 
cultural Society,  useful  institution  that  it  is.  These 
thoughts  did  not  lead  to  successful  practical  results, 
because  the  co-operative  principle  was  still  too  little  un- 
derstood. But  after  the  advent  of  such  co-operative 
regime  as  we  are  now  promised,  we  may  look  for  better 
things. 

The  effect,  indeed,  has  been  pretty  general.  And  to 
whoever  knows  what  co-operative  credit  means,  it  must 
appear  perfectly  natural.  A  blunted  mind  cannot 
think  any  more  than  a  blunted  blade  can  cut.  Sharpen 
it,  as  co-operative  credit  does,  providing  the  prospect  of 
thought  being  turned  into  profit,  with  the  help  of  means 
for  using  it  supplied,  and  it  will  do  its  work.  Here  is 
the  point.  Credit  supplies  the  means  for  turning  ideas 
into  facts.  The  man  who  finds  it  placed  within  his 
reach  is  like  the  proverbial  soldier  of  Napoleon's  army, 
who  did  not  fight  without  prospect,  but  had  "  the 
marshal's  baton  "  bound  up  in  his  knapsack. 


CHAPTER  X 

LEGISLATION 

If  there  are  to  be  co-operative  banks,  evidently 
there  will  have  to  be  laws  authorising  and  regulating 
their  formation  and  procedure.  There  are  none  such 
at  present  in  the  United  States.  For  what  few  State 
Acts  exist  are  not  at  all  suitable  for  co-operative  bank- 
ing of  any  description. 

There  are  cases,  indeed,  in  which  a  law  may,  at  any 
rate  for  a  time,  be  dispensed  with.  The  history  of 
British  Friendly  societies,  Co-operative  societies,  Trade 
unions  and  Building  societies  furnishes  an  example  of 
this.  It  tells  how  such  associations  may  grow  up  with- 
out a  law,  even  in  the  teeth  of  violent  opposition  in 
legislative  quarters  and  official  frowns,  and  by  their  suc- 
cess practically  compel  Parliament  to  legislate  for  them 
—  perhaps  all  the  more  suitably  for  having  delayed 
action  until  the  object  of  such  had  become  thoroughly 
understood  by  the  light  of  experience.  And,  in  view 
of  such  successes,  when,  after  having  primed  himself  by 
study  of  my  book  "  People's  Banks"  and  by  corres- 
pondence with  sundry  other  European  co-operators  to 
whom  I  had  referred  him,  my  friend  Mr.  Alphonse 
Desjardins,  in  despair  at  the  absence  of  a  suitable  Act 
in  the  Dominion  of  Canada,  and  its  provinces,  asked 
my  advice,  how  to  proceed  with  the  formation  of  thrift 
societies,    really    intended    to    become    banks,    in    his 

289 


290  CO-OPERATIVE  CREDIT 

country,  I  very  naturally  recommended  him  to  do  as 
our  co-operators  had  done  in  Great  Britain  and  proceed 
without  a  law,  trusting  for  the  time  to  the  honesty  and 
good  faith  of  his  converts.  That  advice  was  acted  upon 
and,  so  far  as  the  Province  of  Quebec  is  concerned,  it 
has  answered  its  purpose  —  not,  indeed,  to  the  full,  be- 
cause the  law  eventually  passed  is  faulty  in  some  im- 
portant particulars;  but  still  sufficient  for  its  purpose 
in  this  respect  that  it  places  the  societies  and  their 
creditors  under  legal  protection.  It  still  prohibits  the 
taking  of  deposits  from  non-members.  It  thereby  dam- 
agingly  restricts  its  sphere  of  action  and  makes  it  rather 
a  humble  loan  society  than  a  bank.  But  it  will,  please 
God,  prove  the  stepping  stone  to  something  more  per- 
fect. 

The  United  States  are  not  at  the  present  time  quite 
as  badly  off  as  Canada  was  in  1900.  They  indeed  have 
no  genuine  co-operative  laws.  There  are  some,  nom- 
inally, in  a  limited  number  of  States  —  I  believe  there 
are  sixteen.  Those  laws  are  cumbrous  and  unsuitable 
in  the  extreme,  and  very  clearly  demonstrate  how 
widely  the  American  conception  of  Co-operation  still 
differs  from  the  British  and  generally  the  European. 
There  is  the  unmistakable  stamp  of  the  joint  stock 
company  upon  them  and  official  suspicion  of  intended 
wrongdoing  surrounds  them  with  barbed  wire  en- 
tanglements. Societies  are  supposed  to  work  "  for 
profit " —  whereas  our  European  societies  distinctly 
work  "  for  economy  "  and  therefore,  in  Great  Britain 
at  all  events,  escape  taxation.  There  is  no  "  profit " 
in  them.     The  American  societies  are  to  be  formed  for 


LEGISLATION  291 

a  certain  fixed  period,  with  a  fixed  "  capital  stock,"  to 
be  named  beforehand,  which  stock  is  to  be  "  subscribed 
for  "  within  a  certain  time  in  shares  of  not  less  than 
$50  nor  more  than  $2,000,  of  which  shares  each  mem- 
ber may  hold  only  one.  The  society  is  to  constitute  a 
"  corporation."  It  is  to  be  burdened  w^ith  an  official 
hierarchy  of  "  a  President,  a  Vice-President,  a  Secre- 
tary and  a  Treasurer  "  and  more  "  Directors."  And 
everybody  is  to  be  sworn  and  made  to  find  security. 
Those  shares  may  be  "  sold  to  any  person,"  and  in 
some  cases  they  must  be  offered  to  the  public.  And 
there  is  to  be  a  General  Meeting  "  at  least  once  a 
month.'-  ^ 

l^ow  in  Europe  we  particularly  insist  that  a  co-oper- 
ative society,  in  contradistinction  to  a  joint  stock  com- 
pany, is  a  combination,  not  of  capitals  but  of  persons. 
Nobody  is  sworn  or  required  by  law  to  find  security. 
The  administering  body  required  by  law  is  a  simple 
*'  Committee  of  Management."  Shares  are  small,  as  a 
rule  of  $5,  and  members  may  at  their  pleasure  take,  one 
after  another,  at  any  time  as  many  as  they  like  up  to 
the  value  of  $1,000.  But  such  shares  must  not  be  sold 
"  to  any  person  "  but  can  only  be  transferred  to  per- 
sons previously  accepted  by  the  Committee  as  members. 
At  the  same  time  there  is  no  limit  to  the  share  capital 
of  the  society;  it  may  be  increased  at  pleasure.     In 

1 1  am  indebted  for  such  knowledge  as  I  possess  on  the  mat- 
ter to  the  kindness  of  the  acting  Commissioner  of  Labor,  who, 
in  September,  1912,  was  good  enough  to  send  me  a  number  of 
the  Bulletin  of  the  Board  of  Labor  quoting  the  law  for  Illinois, 
as  given  in  the  "  Eevised  Statutes  of  1905,"  with  the  explana- 
tion added  that  "the  essential  features  (of  all  these  laws) 
are  so  similar  that  no  summary  or  digest  is  necessary." 


292  CO-OPERATIVE  CREDIT 

Italy  I  have  known  a  co-operative  credit  society  of  con- 
siderable merit  which  had,  and  still  has,  shares  of  only 
$7.  However  many  shares  a  man  may  hold,  he  will 
still  be  entitled  to  only  one  vote.  The  members 
meet  once  a  year  in  general  meeting,  rarely  oftener. 
That  would  be  in  "  special  meeting  "  for  some  special 
and  exceptional  purpose.  Evidently,  since  the  Ameri- 
can Acts  prescribe  that  the  shareholders  shall  provide 
all  the  "  labour  "  and  must  not  employ  auxiliaries,  the 
laws  are  intended  to  apply  only  to  "  productive  socie- 
ties," leaving  all  the  others  —  distributive,  supply, 
credit,  agricultural,  etc. —  out  in  the  cold.  That  ex- 
plains why  those  hosts  of  Elevators,  Telephone,  Insur- 
ance, Dairying  and  Irrigation,  Emit  and  Sale  societies, 
and  so  on,  although  named  "  Co-operative,"  will  not  fit 
into  our  European  notions  of  co-operative  societies. 
They  are  working  "  for  profit."  They  are  "  mutual  " 
societies,  comparable  to  syndicates  or  rings. 

Since  a  few  years  there  are  in  one  or  two  States  — 
three,  so  far  as  I  have  been  able  to  learn,  to  wit,  Massa- 
chusetts, New  York  and  Texas  —  special  laws  for 
"  Credit  Unions,"  to  which  "  Credit  Unions  "  they  set 
a  very  narrow  ambition.  They  altogether  preclude 
them  from  becoming  co-operative  banks.  These  new 
Acts  will  be  briefly  discussed  a  little  further  on.  But 
it  may  be  well  first  to  look  and  see  what  has  been  done 
in  the  matter  elsewhere. 

Now,  in  view  of  very  marked  differences  prevailing 
—  of  circumstances,  habits  and  usages  —  precedents 
taken  from  other  countries  can  obviously  possess  only  a 
limited  value  as  guidemarks  to  go  by.     However  a  cer- 


LEGISLATION  293 

tain  value  they  do  undoubtedly  possess.  It  cannot, 
therefore,  be  amiss  briefly  to  take  stock  of  what  legisla- 
tion, that  has  proved  successful,  has  been  passed  else- 
where. In  the  majority  of  foreign  countries  legislation 
on  co-operative  credit  is  still  in  a  rather  confused  con- 
dition, which  shows  that,  what  between  undue  timidity 
and  distrust  on  one  side,  and  deficient  understanding  as 
to  what  should  be  asked  for,  on  the  other,  the  Gordian 
knot  has  not  yet  been  fully  cut.  In  France  there  is  a 
kind  of  chaos,  to  remedy  which  the  revision  of  existing 
laws  is  now  proposed.  Neither  in  Belgium  nor  in  Italy 
is  the  condition  of  things  quite  satisfactory.  In  Bel- 
gium co-operative  societies  are  simply  "  commercial " 
societies.  But  there  are  three  good  laws  —  defective 
only  on  minor  points  —  that  is,  in  Germany,  in  Austria 
and  in  the  United  Kingdom.  The  laws  in  all  these  last 
named  three  countries  have  proved  satisfactory  in  gen- 
eral and  those  who  work  imder  them  are  pleased  with 
them.  The  reason  of  their  success  evidently  is  that  they 
lay  down  broad  principles,  but  do  not  enter  into  minute 
details,  such  as  the  Latin  proverb  says  that  the  law 
should  ignore,  and  such  as  the  authors  of  the  Acts  of 
Massachusetts,  New  York  and  Texas  appear  to  have 
delighted  to  revel  in.  To  employ  a  historic  phrase  of 
the  late  Archbishop  of  Canterbury  — "  we  trust  the 
people  "  —  they  had  trust  in  members  of  co-operative 
societies  (being  aware  that  their  own  interest  requires 
good  practice  on  their  part),  abstaining  therefore  from 
tying  their  hands — save  in  one  thing:  their  accounts 
must  be  thoroughly  verified  and  there  must  be  search- 
ing control,  so  that  there  can  be  no  danger  of  any  one 


294  CO-OPERATIVE  CREDIT 

being  misled  by  false  statements.  It  is  an  entire  mis- 
take, engendered  by  ignorant  prejudice,  to  go  into 
minutiae,  as  the  three  American  Acts  named  and  the 
draft  bills  brought  in  as  a  sequel  to  the  European  in- 
quiry by  the  "  American  Commission  "  do.  That  only 
unnecessarily  fetters  the  hands  which  are  expected  to 
work  and  spoils  what  it  is  intended  to  improve.  The 
British  Acts  —  there  are  really  two  —  are  the  most 
general.  But  they  have  been  found  suflBcient  —  in  one 
case  fully,  in  the  other  at  any  rate  fairly  —  even  for 
banking,  for  which  they  were  not  by  any  means  in- 
tended. The  Industrial  and  Provident  Societies  Act 
of  1893  —  recently  supplemented  by  that  of  1913  — 
which  makes  limitation  of  liability  obligatory,  con- 
templates banking  to  this  extent,  that  it  prohibits 
"  banking "  in  societies  with  withdrawable  shares  — 
which  is  no  serious  hindrance.  Many  people  indeed 
prefer  to  have  withdrawable  shares,  because  they  wish 
to  be  able  to  get  out  of  a  society  into  which  they  have 
first  got.  It  disposes  people  more  readily  to  go  in,  if 
they  know  that  they  can  go  out  again.  For  Raiffeisen 
banks,  however,  we  must  have  unlimited  liability.  Ac- 
cordingly we  have  had  to  register  such  societies  under 
the  Friendly  Societies  Act  of  1896,  which  is  the  only 
Act  at  all  suitable  for  the  purpose,  as  permitting  un- 
limited liability,  but  which  was  designed  for  societies 
of  a  totally  different  order.  It  did  not  at  first  per- 
mit the  taking  of  deposits  beyond  an  entirely  inade- 
quate proportion.  But  that  has  been  remedied  by  the 
Societies  Borrowing  Powers  Act  of  1898,  brought  in 
for  that  very  purpose  by  Sir  Horace  Plunkett,  when  in 


LEGISLATION  295 

Parliament,  which  Act  gives  societies  full  powers  to 
borrow,  from  non-members  as  well  as  from  members, 
so  long  as  they  do  not  work  "  for  profit,"  that  is,  do  not 
"  pay  dividends,  or  bonus,  make  all  money  lent  ap- 
plicable only  to  such  purposes  as  the  Society  or  the  Com- 
mittee of  Management  may  approve,"  and  make  their 
reserve  fund  indivisible.  Societies  formed  under  the 
Industrial  and  Provident  Societies  Act  have  full  bor- 
rowing powers  in  any  case.  Under  that  Act  it  is  share- 
holding powers  which  are  limited,  lest  one  man  or  a 
few  men  should  acquire  excessive  money  power. 
Members  or  non-members  alike  may  deposit  or  lend 
to  the  Society  as  much  as  ever  they  please.  Unques- 
tionably it  would  be  more  convenient  if  there  were  one 
Act  only  for  both  classes  of  banks,  as  is  the  case  in  Ger- 
many and  Austria.  But  that  appears  at  present  to  be 
impracticable  owing  to  the  strong  objection  which  Brit- 
ish co-operative  societies  quite  justifiably  entertain 
against  permitting  unlimited  liability  under  a  law 
which  may  be  made  applicable  to  societies  of  their  own 
class.  Under  either  Act  the  accounts  of  societies  have 
to  be  submitted  annually  to  the  Chief  Registrar  of 
Friendly  Societies,  whose  business  it  is  to  see  that 
all  provisions  of  the  law  are  fully  complied  with  and 
that  the  figures,  being  previously  audited  by  competent 
men,  are  true  to  facts.  He  does  not  go  beyond  that. 
He  may  cancel  the  register  of  a  society  which  acts  illeg- 
ally or  which  remains  for  any  length  of  time  insolvent 
But  he  does  not  interfere  in  the  management. 

The  German  law  is  probably  the  best  which  at  present 
exists  for  this  particular  matter.     The  wide  extension 


296  CO-OPERATIVE  CREDIT 

of  co-operative  banking  in  Germany  has  pressed  the 
subject  upon  the  attention  of  legislators.  To  a  certain 
—  desirable  —  extent  it  enters  into  questions  of  organ- 
isation. Whereas  the  British  Act  only  requires  that 
there  should  be  a  "  Committee  of  Management "  prop- 
erly constituted,  the  German  Act  —  which  in  its  main 
features  has  served  as  a  prototype  for  the  Austrian  — 
lays  it  down  that  there  must  be  a  Committee  (Vorstand) 
as  executive  authority,  and  also  a  Council  of  Supervi- 
sion (Aufsichtsrath) ,  on  neither  of  which  bodies  may 
members  of  the  other  body  sit.  The  Council  of  Super- 
vision, as  already  explained,  corresponds  in  its  func- 
tions and  attributes  to  the  Board  of  Directors  in  a  Joint 
Stock  Company,  the  Committee  to  the  Managing  Direc- 
tor. Therefore,  under  the  General  Meeting,  which  is 
paramount  in  all  things,  the  Council  of  Supervision  is 
supreme.  iSTo  number  is  prescribed  for  the  Commit- 
tee. But,  since  every  transaction  requires  the  signa- 
tures of  two  members  —  who  have  eventually  jointly 
to  bear  the  responsibility  —  and  who  are  expected  to 
check  one  another  —  there  must  be  at  least  two.  The 
Act  also  requires  that,  apart  from  the  drawing  up  of  the 
balance  sheet,  and  the  annual  audit,  there  shall  —  as 
already  shown  —  be  an  inspection  at  least  once  every 
two  years,  by  an  officer  of  an  authorised  "  Union,"  or 
else  by  an  officer  appointed  by  the  Government.  It  — 
^visely  —  prohibits  advances  to  be  made  on  the  security 
of  shares  in  the  particular  society,  and  it  fixes  the  term 
during  which  the  outgoing  member  shall  remain  liable 
in  respect  of  his  shares,  at  two  years. 


LEGISLATION  29T 

Here  we  have  everything  that  is  essential  fully  and 
effectually  provided  for,  without  any  hampering  inter- 
ference. There  are,  as  observed,  minor  defects  in  the 
Act.  But  in  general  it  has  given  full  satisfaction,  and 
under  it  co-operative  banks  have  flourished.  Their 
own  interest,  generally  speaking,  keeps  them  steady. 
Wherever  they  have  gone  wrong,  it  has  not  been  be- 
cause the  law  was  imperfect,  but  because  its  precepts 
had  not  been  observed. 

The  American  Acts  thus  far  passed  or  proposed  are 
framed  upon  altogether  reverse  lines.  They  go  very 
minutely  —  prejudicially  and  hinderingly  —  into  par- 
ticulars and  ignore  altogether  very  important  main 
points.  If  in  any  respect  they  secure  the  depositor  or 
the  creditor,  to  a  much  greater  extent  do  they  prevent 
the  society  from  doing  what  it  was  intended  to  do. 

To  begin  with,  they  most  effectually  prevent  it  from 
becoming  a  "  bank."  We  must  here  leave  the  provi- 
sions proposed  —  and  in  Wisconsin  actually  passed  — 
for  co-operative  mortgage  banks  out  of  account.  That 
question  is  dealt  with  in  a  separate  chapter.  The  other 
class  of  societies  could  not  under  such  laws  as  those 
here  reviewed  possibly  become  "  banks."  For  a  bank's 
business  is  to  collect  money  from  whoever  will  deposit 
such,  and  employ  it  afterwards  in  its  own  way.  One 
of  its  particular  objects  is  to  provide  for  money  so 
collected  —  taken  from  all  comers  —  more  fructifying, 
stimulating  and  more  widely  useful  employment  than 
commercial  banks  and  savings  banks  can  furnish, 
directing  it   into  those  millions  of  small  productive 


298  CO-OPERATIVE  CREDIT 

channels,  out  of  which  springs  up,  not  the  wealth  of 
millionaires,  but  the  general  wellbeing  of  the  whole 
nation.  It  is,  in  M.  d'Andrimont's  words,  to  "  de- 
mocratise "  banking.  The  Massachusetts  and  New 
York  Acts  —  of  which  latter  I  understand  that  the 
Texas  Act  is  little  more  than  a  replica  —  explicitly 
limit  the  taking  of  deposits  to  members  only,  thereby, 
by  one  fatal  clause,  condemning  the  society  to  the  status 
of  a  mere  thrift  or  loan  society,  like  a  slate  club  or 
funding  club.  This  is  like  giving  a  man  a  tool  to 
work  with  and  telling  him  that,  for  fear  of  mishap,  he 
must  not  on  any  account  use  it.  Without  deposits 
coming  in  from  the  outside  you  can  never  expect  to 
get  together  anything  like  the  sums  of  money  that  you 
want.  The  men  who  combine  in  such  a  society  combine 
because  they  ivant  money.  They  want  to  tap  the 
market  for  it  with  their  co-operative  security,  just  as 
the  capitalist  taps  it  with  his  more  pretentious,  but 
in  no  wise  inherently  more  valuable,  capitalist  security. 
The  intended  transaction  is  the  same;  it  is  only  the 
form  of  the  security  offered  that  is  varied.  What  on 
earth  is  the  use  of  offering  a  man  a  biscuit  when,  to 
keep  him  alive,  he  wants  a  family  loaf  ?  Such  restric- 
tions as  these,  apart  from  disappointing  the  wish  which 
they  profess  to  satisfy,  defeat  themselves.  Nobody 
obliges  outsiders  to  deposit  with  the  society.  So  long,  as 
the  society  does  not  appear  to  them  to  be  worth  trusting 
they  will  as  a  matter  of  course  abstain  from  doing  so 
and  go  for  depositing  to  better  known  institutions. 
They  do  not  want  in  the  United  States  to  be  begrand- 
mothered  in  their  money  transactions.     It  is  the  soci- 


LEGISLATION  299 

ety's  own  interest  to  prove  to  them  that  it  is  safe.  And 
the  best  policy  is  to  constrain  the  society  to  do  such 
work  for  itself.  That  being  done,  it  is  downright 
foolish  for  the  Legislature  to  want  to  intervene  and 
forbid  deposits  —  more  particularly  seeing  what  very 
useful  purposes  money  so  deposited  is  pretty  certain  to 
be  turned  to,  which  it  could  never  reach  through  other 
channels.  Co-operative  banking  is  to-day  no  longer  in 
the  experimental  stage,  in  which  it  was  sixty  years  ago. 
It  has  passed  through  its  trial  and  has  stood  the  test, 
and  showTi  what  stuff  it  is  made  of.  If  you  would 
study  safety,  your  object  will  be  far  better  served  by 
putting  the  societies  on  their  best  behaviour,  so  as  to 
make  them  gain  the  confidence  of  the  multitude,  than 
by  tying  their  hands  so  as  to  weaken  their  sense  of 
responsibility  and  poking  your  nose,  untrained  as  it 
must  be  for  this  purpose,  into  their  affairs. 

There  is  more  that  is  faulty.  For  a  European  it  is 
difficult  to  understand  why  there  should  be  all  that 
swearing  in  of  officers,  and  why  so  many  "  surety 
bonds  "  should  be  needed,  nor  why  membership  should 
be  so  jealously  limited  to  citizens  of  the  particular 
state,  even  as  a  nucleus;  and  why,  furthermore,  mem- 
bers of  the  governing  bodies  should  be  precluded  from 
borrowing  "  either  directly  or  indirectly  "  —  seeing 
that  in  all  probability  they  joined  the  society  for  the 
very  purpose  of  becoming  qualified  to  borrow. 

The  functions  of  the  various  committees  also  appear 
to  have  been  confused,  in  some  cases  turned  topsy  turvy, 
presumably  from  a  want  of  understanding  what  they 
should   be,    coupled   with   a   nervous   fear   lest   there 


300  CO-OPERATIVE  CREDIT 

should,  in  Lord  Byron's  words,  "  be  harm  in  whatever 
you,  she,  he  or  it  may  be  about."  How  on  earth  is  a 
movement  like  that  of  co-operative  banking  to  prosper 
with  its  wings  clipped  and  its  hands  and  feet  tied  in 
this  fashion  ?  If  you  are  so  very  much  afraid  of  hav- 
ing co-operative  banks  go  wrong,  you  had  very  much 
better  not  allow  them  at  all.  They  cannot  prosper  in 
such  bondage.  All  these  minute  intended  safeguards 
recall  to  my  mind  a  story  that  Mr.  Chamberlain  told 
me,  when  he  was  at  the  Board  of  Trade,  at  the  time  of 
the  dynamite  scare,  about  a  mysterious  "  metal  cylin- 
der "  delivered  at  his  office  in  London,  of  which  every 
one  in  the  office  in  his  turn  —  whose  office  it  would 
have  been  to  open  it,  from  his  private  secretary  down- 
ward —  fought  nervously  shy.  It  looked  so  very  un- 
canny —  surely  it  must  contain  dynamite !  As  a  last 
resource  the  police  were  called  in  and,  being  likewise 
solicitous  for  their  own  life  and  limbs,  they  packed  it 
carefully,  like  a  baby  that  must  not  be  awakened,  into 
a  barge  and  floated  it  cautiously  down  the  Thames  to 
Woolwich,  where  it  was  loaded  into  a  cannon  and  fired 
off  over  Plumstead  Marshes  —  when  nothing  happened. 
Next  morning's  mail  brought  a  letter  of  advice  from  the 
Sheffield  Town  Council  stating  that  a  sample  of  the 
water  from  their  new  waterworks  had  been  sent  up  in 
a  "  metal  cylinder "  for  the  Board  to  take  note  of. 
Now,  are  American  Legislatures  going  to  be  afraid  of 
what  figuratively  speaking  is  no  more  dangerous  than 
that  Sheffield  water? 

From  what  one  hears  it  is  Italians,  only  temporarily 
settled  in  the  United  States,  and  therefore  aliens,  who, 


LEGISLATION  SOI 

being  familiar  with  co-operative  banking  from  their 
own  home,  and  not  troubling  much  about  American 
laws,  have  thus  far  done  best  over  their  little  co-opera- 
tive banks.  But  could  one  not  trust  native  Americans 
to  do  as  well  as  these  immigrants  ? 

For  the  shortcomings  of  the  Massachusetts  Act  there 
is  an  acceptable  excuse.  That  Act  was,  as  Mr.  Pierre 
Jay,  its  author,  has  explained  to  me,  drafted  when  pub- 
lic opinion  was  still  quite  unprepared  for  legislation 
on  the  subject  and,  to  propitiate  the  Legislature,  it  had 
to  be  put  into  a  shape  to  resemble  the  measures  in  force 
for  the  well-known  Building  and  Loan  Societies.  We 
are  familiar  with  similar  cases  in  England.  They 
probably  occur  in  every  country.  Bills  are  put  for- 
ward, not  as  being  perfect,  but  "  to  pass."  Proposals 
of  mine  regarding  a  consolidation  of  our  two  Acts  for 
the  very  same  purpose  have  been  benevolently  rejected 
by  a  Public  Department  on  the  very  ground  that,  al- 
though they  would  doubtless  serve  the  proposed  purpose 
best,  they  could  not  be  expected  successfully  to  run  the 
gauntlet  of  unreasonable  opposition  to  anything  new 
that  members  of  Parliament  love  to  engage  in.  How- 
ever the  Kew  York  Act  was  passed  four  years  later, 
when  public  opinion  must  have  been  to  some  extent 
familiarised  with  the  subject.  Perhaps  I  may  be  per- 
mitted to  quote  here  my  criticism  in  the  words  of  a 
memorandum  which  at  the  request  of  President  Ken- 
yon  L.  Butterfield,  of  Amherst  (who  acted  as  chairman 
at  the  meetings  in  Europe  of  the  "  American  Commis- 
sion") I  drew  up  for  the  use  of  that  gentleman,  some 
time  ago,  when  to  my  alarm  I  learnt  that  there  was  a 


302  CO-OPERATIVE  CREDIT 

probability  of  the  Commission  recommending  the  New 
York  Act  as  a  model  for  imitation. 

"  I  cannot  think  that  the  New  York  Act  on  Credit  Unions 
is  a  suitable  Act  to  accept  as  a  model  for  further  legislation. 
More  in  particular  is  it  wholly  unsuitable  for  banks  of  the 
Eaiifeisen  type,  the  formation  of  which  it  appears  intended 
to  promote,  but  which  could  not  possibly  be  formed  under 
this  Act.  The  entire  conception  underlying  the  Act  seems 
wrong.  Its  authors  appear  to  have  failed  to  realise  that 
they  were  legislating  for  voluntary  societies  of  persons  com- 
bining because  they  are  weak  in  capital,  persons  bound  by 
the  same  interest,  and  restricted  to  doing  business  solely 
among  themselves,  and  to  have  been  guided  by  apprehensions 
of  the  Act  being  perverted  to  improper  uses  by  greedy  capi- 
talists seeking  to  exploit  other  people. 

"  The  mere  catalogue  of  oaths  required  from  office  bearers 
and  others,  and  of  pains  and  penalties,  proceedings  by  the 
Attorney  General,  etc.,  kept  in  store,  would  astonish  a  Eu- 
ropean co-operator.  There  is  no  need  for  such,  as  indeed 
for  most  of  the  voluminous  State  interference  here  provided 
for.  Government  interference  should  be  kept  out  as  much 
as  possible,  because  its  unfailing  tendency  is  distinctly  to 
weaken  members'  sense  of  responsibility,  which  in  fact  is  the 
pillar  upon  which  the  entire  fabric  must  rest.  Credit  can- 
not possibly  be  dealt  with  in  such  a  mechanical,  rule-of- 
thumb  sort  of  way.  Every  application  for  it  requires  to 
be  considered  on  its  own  intrinsic  merits.  The  State  is  right 
in  adopting  precautions  assuring  that  legislative  provisions 
will  be  complied  with  and  that  the  figures  published  as  indi- 
cating the  financial  position  of  the  Union  are  in  accordance 
with  fact.  But  beyond  such  point  all  interference  on  its 
part,  however  well  intended,  is  bound  to  be  hurtful.  Mem- 
bers of  the  Credit  Union  are  the  persons  most  interested  in 
the  safety  of  their  union,  and  under  proper  rules  they  have 
ample  power  for  keeping  it  so.  The  legislator's  aim  should 
be  to  stimulate  and  quicken  such  interest.  Also,  under  the 
surveillance  of  the  Superintendent  of  Banks,  the  procedure 
provided  for  in  the  event  of  Credit  Unions  landing  them- 
selves in  difficulties  appears  unduly  severe.     Credit  Unions 


LEGISLATION  303 

should  not,  of  course,  get  to  such  a  point.  And  it  rather 
must  be  their  own  object  to  avoid  that.  But,  after  all,  it  is 
their  own  money  which  is  at  stake.  There  are  not  a  few 
cases  in  Europe  of  co-operative  banks  being  got  into  diffi- 
culties and  getting  out  again  by  their  own  eiforts,  with  the 
help  (involving  no  ultimate  loss)  of  other  co-operative  banks. 

"  Once  interference  becomes  unavoidable,  on  the  other  hand, 
we  should,  in  the  old  world,  adopt  prompter  methods  than 
those  here  prescribed,  viz.,  an  action  by  the  Attorney  Gen- 
eral. Our  Registrar  of  Friendly  Societies  has  full  powers, 
which  he  has  never  been  known  to  abuse. 

"  There  are  some  points  on  which,  with  all  its  excessive  se- 
verity already  commented  upon,  the  New  York  Act  fails  to 
provide  adequately  for  safety.  Thus  it  leaves  the  Union  to 
fix  the  limits  of  its  own  '  activity ' —  it  is  true,  subject  to 
the  approval  of  the  Superintendent  of  Banks.  But  that  is  not 
necessarily  a  sufficient  safeguard.  We  have  in  Europe  found 
quite  mistaken  approvals  given.  Some  limits  should  be 
drawn  in  the  Act.  Once  more,  whereas  the  Act  deals  with 
quite  needless  minuteness  with  the  rate  of  interest  to  be 
allowed  on  deposits  or  charged  on  loans,  it  leaves  two  main 
points,  upon  which  everything  turns  —  that  is,  the  limitation 
of  dividend  on  capital  and  the  limitation  of  capital  (shares) 
itself  —  unprovided  for.  The  concern  being  co-operative,  it 
is  essential  that  dividend  on  share  capital  should  be  limited 
or,  in  spite  of  all  pains  and  penalties  threatened,  it  may  de- 
generate into  a  profit-seeking  organisation.  The  excess  sur- 
plus belongs  to  those  who  use  the  Credit  Union,  that  is,  the 
borrowers  —  among  whom,  after  due  allowance  to  reserve,  it 
ought  to  be  distributed  as  a  dividend  upon  business.  Again, 
the  Act  says  nothing  about  a  limitation  of  the  maximum  of 
'  interest ' —  that  is,  holding  in  shares  —  which  a  member 
may  acquire  in  the  concern.  That,  once  more,  is  a  dangerous 
omission.  For  without  such  provision,  in  spite  of  the  *  one 
man,  one  vote,'  the  Union  may  become  the  property  of  one 
man  or  a  few  men,  and  turned  into  a  profit-seeking  concern. 
In  all  other  countries  the  limit  drawn  is  $1,000.  There  is 
no  fault  to  be  found  with  the  maximum  limit  fixed  for  the 
share,  viz.,  $25.  Only,  it  is  a  serious  mistake  that  shares 
are  to  all  appearance  to  be  dealt  with  as  a  marketable  com- 


304  CO-OPERATIVE  CREDIT. 

modity,  with  a  'face  value,'  and  accordingly  presumably 
also  a  *  market  value/  to  be  sold  to  any  bidder,  indeed  to  be 
offered  for  sale  by  the  Union  in  the  case  of  defaulting  mem- 
bers; and  that  no  liability  is  made  to  attach  to  outgoing 
members  in  respect  of  their  shares.  The  share  is,  in  truth, 
or  ought  to  be,  anything  but  a  marketable  commodity.  It 
ought  not  to  be  allotted  except  with  the  consent  of  the  Board. 
A  Union  all  shares  and  no  money  would  be  an  abortion. 
Our  British  Act  designedly  makes  shares  not  withdrawable, 
but  transferable,  subject  to  the  consent  of  the  Committee. 
Shares  to  be  put  an  end  to  may,  of  course,  be  '  cancelled.' 
But  that  is  another  matter.  Foreign  co-operative  banks 
adopt  other  safeguards  as,  for  instance,  to  make  the  sum- 
moning of  a  General  Meeting  compulsory  whenever  a  certain 
number  of  shares  come  to  be  withdrawn,  to  determine  whether 
the  bank  is  to  go  on  with  its  reduced  capital,  or  to  wind  up 
at  once.  And  there  is  no  Act  on  this  subject  which  does  not 
make  outgoing  members  liable,  in  consequence,  for  some  defi- 
nite period,  mostly  two  years. 

"  Another  regrettable  feature  is  that  the  Act  omits  to  rule 
out  dangerous  investments  of  Union  funds,  although  quite 
unduly  unkind  in  cutting  down  legitimate  investments  to 
very  poorly  paying  securities  —  which,  in  the  case  of  the  re- 
serve fund,  as  will  still  be  shown,  constitutes  a  real  hard- 
ship. The  Union  might,  on  the  other  hand,  be  allowed  wider 
latitude  in  investments ;  but  it  should  be  forbidden  to  immo- 
bilise its  cash  and  to  invest  it  in  shares  of  other  societies, 
which  might  involve  it  in  liabilities  not  to  be  foreseen.  The 
sole  exception  to  this  is  that  it  should  be  allowed,  under  cer- 
tain provisions,  to  take  shares  in  a  Central  Bank,  to  become 
a  clearing  house  for  Credit  Unions  and  a  link  with  the  money 
market. 

"  As  regards  Government  regulations  the  Act  might,  on  an- 
other point,  deal  a  little  more  generously  with  Credit  Unions, 
namely  in  the  matter  of  charges,  fees,  costs  and  expenses.  I 
am  not  in  possession  of  the  other  Acts  referred  to,  which 
regulate  such  outgoings.  But  the  outgoings  appear  fixed 
upon  the  joint  stock  company  scale.  It  is  a  imiversal  prac- 
tice to  allow  co-operative  societies  remissions  or  reductions. 

"  The  organisation  prescribed  in  the  New  York  Act  con- 


LEGISLATION  305 

fuses  functions  and  thereby  acts  further  in  diminution  of 
the  required  sense  of  responsibility,  which  is  the  lifeblood  of 
the  whole  institution.  The  accepted  principle  is  that  there 
should  be  a  fully  responsible  Committee  —  in  the  Act  called 
a  Board  of  Directors  —  to  administer  all  the  affairs  of  the 
Society.  The  Act  indeed  provides  for  a  Board,  but  it  en- 
trusts half  its  proper  functions  to  another  body  which,  so  far 
from  being  under  its  control,  in  truth  controls  the  Board  — 
w^iich  arrangement  cannot  fail  to  weaken  responsibility. 
The  Act  lays  it  down  that  the  Board  shall  be  composed  of  at 
least  five  members,  none  of  whom  are  to  draw  "  compensa- 
tion "  or  salary  —  except  the  "  elected  officers,"  of  whom  out 
of  the  five,  there  are  to  be  four,  constituting  ex  officio  the 
executive  committee,  and  leaving  only  one  poor  member  to 
act  as  '  General  Committee ' —  in  truth  as  the  ornamental 
'  fifth  wheel  to  the  car.'  In  fixing  the  number  at  five  and 
forbidding  "  compensation "  the  avithors  of  the  Act  appear 
to  have  aimed  at  assimilating  the  Credit  Unions  to  Eaiffeisen 
banks,  in  respect  of  which  both  such  provisions  are  adopted. 
However  the  Credit  Union  kept  in  view  cannot  in  truth  be 
anything  like  a  Eaiffeisen  bank.  It  is  based  upon  shares 
and  it  is  evident,  although  this  is  not  explicitly  stated,  that 
such  shares  shall  involve  only  strictly  limited  liability.  The 
number  of  five  is  not  generally  adopted,  nor  is  there  such 
a  hierarchy  of  officers  prescribed  as  in  the  New  York  Act, 
including  the  Secretary  —  who  had  much  the  best  not  be  a 
member  of  the  Committee,  but  an  officer  of  the  Union.  In 
German  credit  banks  there  are  three  directors  —  legally  there 
might  be  only  two  —  with  distinct  functions  nominally  at- 
taching to  each  of  them,  but  practically  all  doing  the  same 
thing.  The  signatures  of  two  of  them,  who  are  made  to  bear 
the  responsibility  for  this  act,  are  requisite  to  every  docu- 
ment issued  on  behalf  of  the  Committed.  These  men,  de- 
voting as  a  rule  all  their  time  to  this  work,  are  paid.  But 
that  is  not  necessary.  In  Italy  there  are  three  sindaci,  elected 
from  out  of  the  General  Committee,  which  acts  practically 
as  supervising  Council,  to  perform  the  same  work  as  a  Ger- 
man Committee,  but  without  salary.  One  of  them  is  re- 
quired to  be  present  whenever  business  is  transacted  and  to 
pronounce  his  fiat  to  every  act.    To  provide  for  emergencies. 


306  CO-OPERATIVE  CREDIT 

there  are  two  'substitutes,'  to  replace  any  of  the  three  who 
may  be  prevented  from  attending.  The  regiilation  that  the 
Board  should  meet  "  as  often  as  is  necessary  "  seems  just  a 
little  vague. 

"  In  one  respect  the  Board  is  in  the  New  York  Act  given 
excessive  power,  in  another  too  little.  It  is  quite  right  that, 
as  a  rule^  the  Committee  or  Board  should  fix  the  two  rates  of 
interest.  But,  as  the  Act  stands  the  Board  might  defy  the 
General  Meeting,  thinking  otherwise,  on  the  ground  of  the 
letter  of  the  Act.  The  General  Meeting  ought  to  be  made 
supreme  in  all  things.  It  should  be  for  the  '  Credit  Union ' 
to  fix  those  rates  of  interest,  the  General  Meeting  in  its  turn 
committing  the  work  to  the  Board,  as  acting  under  its  own 
authority.  And  it  should  be  for  the  General  Meeting,  not 
the  Board,  to  fix  the  maximum  of  borrowing  to  be  permitted 
to  any  one  member.  As  regards  the  two  rates  of  interest, 
the  precise  limits  laid  down  in  the  Act  are  out  of  place.  The 
Union  has  to  cut  its  coat  according  to  its  cloth.  Should  it 
overcharge  at  any  point,  the  excess  would  come  back  to  the 
member  in  dividend  upon  business.  But  members  may  be 
trusted  not  to  permit  excessive  charges. 

However,  on  the  other  hand,  the  Act  takes  away  from  the 
Board  all  discretion-  with  regard  to  loans,  and  makes  it  ut- 
terly dependent  upon'  the  Credit  Committee,  merely  paying 
out  money  as  the  Credit  Committee  may  direct.  There  is  a 
misconception  here  about  the  true  office  of  the  Credit  Com- 
mittee. The  Credit  Committee  is  intended  to  be  a  help  to 
the  Board,  and  not  its  master.  It  is  from  time  to  time  to 
draw  up  a  ceLstelletto,  to  be  kept  strictly  private,  appraising 
every  member,  within  a  safe  limit,  as  to  what  Schulze-De- 
litzsch  called  his  '  capacity  for  credit.'  The  measure  of  his 
'  capacity  for  credit '  is  not  necessarily  the  same  as  that  of 
what  Schulze-Delitzsch  distinguished  as  his  '  credit-worthi- 
ness,' that  is,  his  title  to  credit,  not  purely  on  the  ground  of 
his  actual  possessions  —  which  latter  may,  moreover,  increase 
or  else  decline  between  one  appraisement  and  the  next.  The 
Board  is  permanently  in  ofiice  and  in  a  position  to  appreciate 
changes  occurring.  The  castelletto  (Creditliste)  is,  in  gen- 
eral, intended  as  an  authorisation  to  the  executive  officer  to 
make  certain  advances,   if  asked  for,  without   further  in- 


LEGISLATION  307 

quiry,  if  he  should  know  Bothing  to  invalidate  it  or  to  ren- 
der it  doubtful.  It  does  not  represent  the  maximum  to 
which  the  Credit  Union  might  go,  provided  that  security 
were  found  to  be  sufficient.  The  Credit  Committee  also 
would  be  a  very  inconvenient  body  to  make  responsible  for 
loans  injudiciously  granted.  The  Board  is  the  constitu- 
tional administrative  authority  and  its  power  and  responsi- 
bility may  be  weakened  by  the  introduction  of  a  dualism 
which  can  only  be  to  the  detriment  of  the  Union. 

"  Under  such  circumstances  there  is  no  earthly  reason  why 
the  Supervisory  Council  should  be  authorised  to  interfere 
with  the  Credit  Committee  at  all  or  to  suspend  it.  The 
office  of  that  Committee  is  purely  consultative.  But  the 
Supervising  Council,  which  represents  the  members  gener- 
ally, as  between  one  General  Meeting  and  another,  ought  to 
have  power,  on  an  emergency  arising,  to  suspend  the  Board 
of  Directors,  on  condition  of  referring  the  case  at  the  earliest 
moment  possible,  to  a  General  Meeting.  That  is  a  rule  of 
universal  application. 

*'  As  regards  the  Board's  dealing  with  Union  funds,  I  do 
not  like  what  is  likely  to  be  interpreted  as  a  general  authorisa- 
tion to  lend  without  security  up  to  $50.  You  may  lose  a 
good  deal  of  money  in  fifty  dollar  loans.  I  myself  am  in 
favour  of  asking  for  security  —  as  a  general  rule  —  for  every 
loan,  were  it  only  for  the  sake  of  accustoming  people  to  the 
practice.  However,  very  much  money  is,  and  legitimately 
may  be,  loaned  to  members  in  larger  sums,  altogether  with- 
out security.  That  is  a  question,  under  the  General  Meet- 
ing (to  which  the  Supervisory  Council  will  report  for  the 
Board). 

"  Once  more,  the  condition  laid  down  that  in  respect  of 
every  loan  applied  for  the  intended  object  should  be  stated 
and  adhered  to.  is  out  of  place  in  a  society  based  upon  shares 
and  limited  liability.  That  provision  has  evidently  been 
taken  from  the  Raiffeisen  rules.  However,  it  does  not  neces- 
sarily apply  elsewhere.  And  how  are  you  to  do  if  members 
ask  for  a  cash  credit  to  run  on  from  year  to  year?  I  dis- 
tinctly hope  that  in  Credit  Unions  as  they  are  here  pro- 
posed that  will  become  a  common  practice.  In  EaiflFeisen 
societies  it  would  be  improper.    A  direction  should  be  given 


308  CO-OPERATIVE  CREDIT 

to  the  Board  to  act  in  every  instance  according  to  circum- 
stances. 

"  It  seems  harsh  to  deprive  members  both  of  the  Board  and 
of  the  Council  of  the  right  to  borrow.  Presumably  they 
joined  the  Union  in  order  to  be  able  to  borrow.  And  if  you 
debar  them  that  right  you  run  the  risk  of  depriving  the 
Union  of  useful  officers.  It  cannot  be  denied  that  this  is  a 
crucial  point  in  the  organisation  of  Credit  Unions,  a  weak 
point  in  their  armour.  However,  some  method  to  overcome 
the  difficulty  in  practice  should  be  found.  In  large  co-opera- 
tive banks  there  is  a  special  committee  appointed  to  deal 
exclusively  with  these  cases.  Elsewhere  Board  and  Council 
are  made  to  consider  them  in  common,  of  course  in  the  ab- 
sence of  the  applicant. 

"  Proceeding  further,  the  rules  laid  down  for  the  employ- 
ment of  society  money  are  at  once  too  hampering  and  too 
loose.  The  society  must  endeavour  to  make  both  ends  meet. 
It  is  unfair  to  cripple  it  unduly  in  the  power  of  investment. 

"  Once  more,  the  safeguards  adopted  should  consist  less  in 
such  mechanical  rules  as  the  Act  lays  down,  than  in  responsi- 
bility quickened.  On  the  other  hand,  Credit  Unions  should 
not  be  encouraged  to  immobilise  funds,  as  they  are  often 
tempted  to  do.  That  is  what  has  brought  more  societies  to 
grief  than  almost  any  other  cause.  And  they  should,  as  al- 
ready shown,  not  be  permitted  to  invest  in  shares  of  other 
societies,  so  as  to  pledge  their  liability  beyond  their  own  ken 
and  control. 

"  The  provisions  laid  down,  as  already  stated,  appear  more 
particularly  injudicious  in  respect  of  the  investment  of  re- 
serve funds.  Reserve  should  be  steadily  studied  and  I  con- 
sider the  discretion  given  for  reducing  the  annual  quota 
(rightly  beginning  with  25  per  cent,  of  the  surplus)  as  too 
wide.  There  should  always  be  something  carried  to  reserve, 
because  there  is  no  telling  what  wants  may  arise.  The  figure 
of  the  Union's  liabilities,  laid  down  as  maximum,  although 
sound  in  principle,  is  likely  to  prove  inconvenient  in  prac- 
tice. However,  tying  down  the  reserve  fund  to  certain  se- 
curities only  which  pay  a  low  rate  of  interest  seems  unbusi- 
nesslike. Wliy  should  the  Union  be  made  to  borrow  money 
at  6  or  7  per  cent.,  when  it  has  money  of  its  own  on  which 


LEGISLATION  309 

it  may  net  only  2^2  per  cent?  It  would  be  more  to  the  pur- 
pose to  make  the  reserve  inalienable  and  indivisible,  so  as 
to  prevent  greedy  members  from  wrecking  the  Union  for  the 
sake  of  the  spoils. 

"  Looking  now  at  the  other  side  of  the  balance  sheet,  the 
Act  quite  unduly  limits  the  Union  in  respect  alike  of  bor- 
rowing and  of  the  taking  of  deposits.  The  two  are  practi- 
cally the  same  thing.  The  limit  had  much  the  best  be  left 
to  the  Union  itself,  under  the  checking  influence  of  its  re- 
sponsibility. Certainly  one-fifth  of  the  assets  allowable  only 
for  loan  capital  is  a  mockery.  Our  British  Friendly  Socie- 
ties Act  (under  which  we  have  to  fonn  our  humble  little 
Eaiffeisen  societies,  for  the  sake  of  unlimited  liability)  al- 
lows three-fourths,  and  that  is  quite  insufficient.  So  Parlia- 
ment in  1898  readily  extended  our  powers,  without  setting  a 
limit.  As  a  rule  five  times  the  assets  (share  capital  and  re- 
serve) is  found  a  very  safe  limit,  and  there  are  perfectly 
solvent  societies  which  borrow  a  great  deal  more.  The  ob- 
ject of  the  Union  is,  like  the  object  of  a  bank,  to  attract 
loan  capital  from  outside,  employing  its  own  capital  less  as 
a  working  fund  than  as  what  Leon  Say  correctly  called  a 
'  capital  of  guarantee.' 

"  And  the  taking  of  deposits  should  be  extended  to  such 
from  non-members.  Members  unite,  not  because  they  want 
a  new  receptacle  for  their  excessive  money,  but  because  they 
have  little  money  and  want  to  use  other  people's.  Beyond 
this,  their  entire  raison  d'etre  as  a  thrift  institution  for  pub- 
lic use  is  destroyed  by  a  restriction  to  members.  Put  them 
on  their  good  behaviour !  Compel  them  to  make  their  secur- 
ity accepted  by  the  public  by  careful  administration  and  pub- 
licity, and  you  will  find  both  their  safety  and  their  utility 
very  materially  increased. 

"  Coming  now  to  the  Supervisory  Council,  which  is  an  in- 
dispensable institution,  I  must  confess  that  I  should  prefer 
to  see  the  number  of  its  members  increased,  although  there  is 
no  fixed  principle  with  regard  to  this.  Nevertheless  a  larger 
body  speaks  and  acts  with  greater  authority.  The  Super- 
visory Council,  so  to  put  it,  constitutes  the  permanent  Com- 
mittee of  all  the  Members,  acting  for  the  time  as  their  at- 
torney.   Under  the  General  Meeting  it  should  be  supreme. 


310  CO-OPERATIVE  CREDIT 

without  being  allowed  to  interfere  in  the  regular  functions 
of  the  Board.  It  may  call  the  Board  to  account,  point  out 
irregularities  in  its  conduct,  in  extreme  cases  suspend  it. 
But  it  must  not  weaken  its  sense  of  responsibility  by  snatch- 
ing the  reins  from  its  hands.  It  is  quite  out  of  character  to 
make  it,  as  the  Act  requires,  report  to  the  Board.  Its  Ke- 
port,  reviewing  the  actions  of  the  Board,  must  be  addressed 
to  the  Council's  principals,  that  is,  the  Members.  The  chair- 
man of  the  Council  should  preside  ex  officio  —  when  present 
—  at  the  General  Meetings.  Certain  intervals  should  be 
fixed  for  its  meetings,  say,  at  least  once  every  three  months. 
It  is  quite  allowable  to  make  it  audit  the  Board's  accounts. 
However  that  is  not  its  main  function  and  had  really  much 
better  be  left  to  a  skilled  accountant.  Its  main  action  is  to 
review  the  conduct  of  business  of  the  Board,  inquiring 
wliether  the  precepts  of  the  law  and  the  resolutions  of  the 
members  have  been  observed  and  if  the  discretion  permitted 
to  the  Board  has  been  rightly  used;  and  to  report  thereon  to 
the  General  Meeting.  A  strict  Council,  going  into  particu- 
lars, makes  a  good  Board,  A  danger  lies  contained  in  the 
possibility  that  the  Board  may,  while  acting  fully  within  the 
letter  of  its  authority,  stretch  points  in  favour  of  question- 
able but  forbearingly  favoured  borrowers.  If  left  to  itself 
kindness  may  overbalance  caution.  Once  the  Board  knows 
that  it  has  a  strict  Council  over  it,  which  will  report  to  the 
General  Meeting,  it  will  have  its  answer  of  refusal  ready  for 
doubtful  applicants. 

"  Beyond  the  scrutiny  of  the  Council  there  should,  as  time 
goes  on,  be  periodical  inquiry  by  an  inspector  authorized  by 
a  union  of  Credit  Unions,  whose  action  is  bound  to  add  force 
to  the  whole  class  of  institutions. 

"  From  what  has  been  said  it  will  be  seen  that  Chap.  582 
falls  short  in  many  respects  of  what  is  desirable  in  the  mat- 
ter of  legislation  for  Credit  Unions.  It  would  be  a  pity  if  its 
faulty  provision  were  made  applicable  to  a  wider  area.  Al- 
though a  good  law  will  not  necessarily  make  good  Credit 
Unions,  it  is  certain  that  a  faulty  law  will  make  bad  ones." 

Surely  Americans  know  better  than  to  spoil  a  good 
work  upon  which  they  are  bent,  and  which  may  be 


LEGISLATION  311 

made  to  yield  them  an  immense  national  benefit,  in 
this  very  infantile  way.  Such  laws  as  this  could  not 
have  enabled  Germany  to  raise  those  many  millions  of 
money  annually  turned  loose  for  fruitful  productive 
employment,  nor  M.  Luzzatti  to  say,  as  he  has  done, 
reviewing  the  work  of  his  Banche  Popolari  in  Italy: 
"  There  is  no  one  now  who,  provided  that  he  can  make 
out  a  good  case,  cannot  obtain  credit."  Have  the  thing 
in  such  freedom  as  it  requires  for  beneficial  work,  not 
tied  up  in  a  bag,  like  a  German  baby,  or  do  not  have 
it  at  all !  Provide  as  stringently  as  you  please  for  in- 
spection, for  verification  of  figures,  for  publicity  of  the 
society's  doings !  Fix  as  severe  penalties  as  you  please 
for  wrongdoing!  Make  liability  as  constraining  as  it 
can  be  made !  But  do  not  overburden  the  society  with 
a  hierarchy  of  unnecessary  officers !  Do  not  take  from 
it  the  power  of  raising  money  which  is  the  very  thing 
for  which  it  was  formed!  And  leave  it  its  liberty  of 
management!  It  is  responsibility,  not  minute  legal 
precepts,  calling  for  mechanical,  in  all  probability  under 
such  circumstances  merely  formal,  compliance,  that 
can  put  it  upon  its  best  behaviour. 

Legislation  will,  so  it  appears,  have  to  be  by  States. 
That  means  that  laws  cannot  everywhere  be  alike.  But 
President  Taft's  was  an  excellent  advice,  to  get  the 
States  to  agree  among  themselves  upon  some  general 
principles  to  be  adhered  to  throughout.  There  is  sure 
to  be  interstate  intercourse.  And  it  is  desirable  that 
there  should  be.  So  the  more  legislation  throughout 
the  States  is  cast  in  one  mould,  the  greater  will  be  the 
practical  convenience  resulting. 


CHAPTER  XI 


CONCLUSION 


What  has  been  here  related  —  although  in  no  wise 
exhaustive  —  must,  so  one  would  think,  have  made  it 
plain  that  in  the  shape  of  Co-operative  Credit  an  eco- 
nomic force  of  great  creative  power  has  been  brought 
on  the  scene,  a  force  having  its  magazine  well  stocked 
with  instruments  of  signal  potency  to  produce  alike 
economic  and  moral  results.  The  efficacy  of  its  Midas 
touch  is  not  confined  to  one  country  or  one  race  only. 
We  have  seen  that  it  is  adaptable  to  so  large  a  variety 
of  different  circumstances  that  one  might  almost  judge 
it  to  be  appropriate  to  any  that  might  arise.  It  has 
created  additional  riches  in  the  busiest  and  most  thriv- 
ing industrial  centres  and  in  the  most  fertile  agricul- 
tural districts  of  Central  Germany  as  well  as  on  the 
barren  heights  of  the  Westerwald,  in  the  languishing 
plains  of  neglected  Italy,  in  the  half  desert  wilds  of 
Finland.  We  have  seen  that  it  knows  how  to  accom- 
modate itself  to  the  habits  of  the  Teuton,  the  Gaul,  the 
Turanian,  the  Mussulman,  and  the  Hindoo.  We  have 
observed  how  it  fills  the  national  garner,  employs  the 
wage  earner,  and  enables  him  to  turn  himself  into  a 
self-employer,  to  his  country's  good.     The  bounty  which 

it     brings     is     under     circumstances     immense.     The 

312 


CONCLUSION  313 

boasted  "  billions  "  which  Prince  Bismarck  drew  into 
his  country  from  the  wealth  of  France  could  not,  even 
at  the  time  when  they  were  captured,  remotely  com- 
pare, as  has  often  been  explained  in  Germany,  with  the 
far  more  substantial  spoils  of  Schulze-Delitzsch's  and 
Eaiffeisen's  peaceful  campaign  against  poverty  and 
backwardness  in  that  same  German  Empire.  Wherever 
co-operative  banks  have  acquired  a  firm  footing,  so  it 
is  M.  Luzzatti's  boast,  there  is  no  honest  man  with  a 
good  case  who  cannot  obtain  the  requisite  productive 
credit.  "  It  is  impossible  not  to  acknowledge,"  so  he 
goes  on,  "■  that  we  have  delivered  the  small  folk  and 
the  middle  classes  from  crushing  usury,  that  we  have 
assisted  industry  and  commerce  and,  lastly,  that  we 
have  helped  to  cultivate  throughout  the  fruitful  tree  of 
thrift  on  ground  which  previously  appeared  absolutely 
barren "—"  Thrift  by  which,"  in  Mr.  Gladstone's 
weighty  words,  "  self-help  for  the  masses  is  principally 
made  effective.  In  them  thrift  is  the  symbol  and  in- 
strument of  independence  and  liberty,  indispensable 
conditions  of  permanent  good." 

M.  Luzzatti  in  a  moment  of  forgetfulness  says  noth- 
ing about  Agriculture.  However  it  has  been  shown  — 
and  nobody  knows  this  better  than  M.  Luzzatti  —  that 
Agriculture  has  benefited  at  least  as  much  as  Commerce 
and  Industry  by  the  new  money-raising  force,  and  has 
indeed  obtained  a  new  lease  of  life  and  prosperity,  by 
means  of  joint  action,  in  most  of  its  ministrations,  from 
Co-operative  Credit.  The  broad  acres  of  Germany,  of 
Italy,  of  Austria  and  France,  the  smiling  vineyards 
and  gay  gardens  of  the  Continent,  the  newly  raised 


314.  CO-OPERATIVE  CREDIT 

dairies,  electric  power  works  and  plenty  more  produc- 
tive and  transforming  institutions  bear  eloquent  testi- 
mony to  this.  The  progress  of  such  Credit  has  been 
like  the  advance,  over  neglected  ground,  of  a  beneficent 
fairy,  in  whose  footprints  flowers  spring  up  and  from 
whose  hand  drop  right  and  left  in  abundance  seeds 
charged  with  blessings,  producing  luscious  plants  bear- 
ing precious  fruit.  The  record  of  its  conquests  indeed 
reads,  as  Mr.  E.  W.  Kemmerer,  of  Princeton  Univer- 
sity, writes,  "  like  a  fairy  tale." 

It  is  impossible  to  reckon  up  its  gifts,  scattered 
broadcast  over  a  thirsting  world  in  figures.  There  are 
no  statistics  extant,  which  are  at  all  complete  or  trust- 
worthy. I  raised  the  question  of  collecting  such  at  the 
Congress  of  the  French  Centre  FedSratif  at  Toulouse  in 
1893,  when  an  impulsive  chef  du  cabinet  of  the  French 
Minister  of  Commerce  of  the  time  rashly  promised  per- 
formance on  behalf  of  his  Government  —  which,  how- 
ever, soon  discovered  that  the  task  was  beyond  its  power. 
While  I  was  at  the  head  of  the  International  Co-oper- 
ative Alliance,  I  laboured  to  obtain  the  collection  of 
statistics  in  various  countries  by  the  several  co-opera- 
tive unions  established  there.  We  tried  our  hands  at 
a  compilation  of  statistics  in  189G.  The  result  was 
disappointing.  We  had  secured  the  collaboration  of 
the  very  best  men  in  all  countries  concerned,  including 
the  heads  of  national  statistical  departments.  All 
these  men  could  produce  nothing  worth  presenting, 
simply  because  it  overtaxed  their  powers  to  make  bricks 
without  straw.  In  1913  I  made  a  fresh  independent 
attempt,  the  result  of  which,  as  of  a  further  attempt  in 


CONCLUSION  315 

1914,  is  embodied  in  the  Yearbook  of  tbe  German 
Schulze-Delitzsch  Union.  But  that  only  contains  what 
I  could  personally  collect.  The  International  Statis- 
tical Congress,  at  its  last  sitting,  held  at  Munich,  gave 
its  attention  to  the  subject  and  appointed  a  committee 
to  consider  whether  it  could  take  charge  of  the  task.  It 
is  to  be  hoped  that  it  may  see  its  way  to  doing  so.  For 
certainly  it  is  desirable  that  the  world  should  learn 
what  Co-operative  Credit  does  for  it.  Meanwhile  we 
know  that  less  than  a  thousand  Schulze-Delitzsch  banks 
in  Germany  lend  out  annually  something  like  $750,- 
000,000,  or  more,  raised  by  credit,  but  raised  in  the 
safest  conceivable  way,  thanks  to  good  organisation  and 
conscientious  administration  —  raised  cheaply,  for  the 
most  part  by  deposits,  resulting  from  the  powerful 
stimulus  given  to  thrift  by  those  "perfected  savings 
banks." 

And  all  this  vast  amount  of  money  —  a  sum  that  in 
truth  nothing  but  Co-operation  could  have  brought  to- 
gether from  such  homely  sources  —  has  found  its  way 
back,  readily  and  surely,  into  employment  of  the  most 
profitable  and  beneficent  kind,  where  it  is  bound  to  do 
the  largest  amount  of  general  good,  greasing,  so  to 
speak,  those  millions  of  steadily  revolving  wheels  in 
the  world's  machinery,  to  which  it  is  difficult  by  other 
means  to  apply  the  lubricating  golden  oil,  but  which 
contribute  most  largely  to  the  world's  productive  work 
and  leave  most  blessings  behind.  The  millionaire's 
speculative  venture  may  make  him  the  richer  by  more 
millions  and  enable  him,  like  the  emperor  Vitellius,  to 
feed  upon  larks'  tongues;  but  it  may  also  land  him  in 


316  CO-OPERATIVE  CREDIT 

insolvency.  The  smaller  man's  humble  work  brings 
abiding  comfort  and  contentment  to  the  million.  And 
it  does  so  surely  and  naturally.  Professor  Carver  — 
who,  being  placed  at  the  head  of  the  newly  instituted 
Eural  Organisation  section  in  the  United  States  De- 
partment of  Agriculture,  promises  with  his  quick  mind 
and  evident  energy  to  do  a  great  amount  of  good  ser- 
vice to  American  Agriculture  — the  other  day  remarked 
in  a  paper  read  before  the  "American  Economic  Asso- 
ciation," that  "  it  has  never  yet  been  sufficiently  em- 
phasised that  the  function  of  a  co-operative  credit 
association  is  just  as  much  to  refuse  credit  as  to  give 
it."  Where  does  Professor  Carver  take  such  impres- 
sion from?  That  has  been  the  burden  of  the  daily 
preaching  of  all  recognised  teachers  of  Co-operative 
Credit  for  more  than  sixty  years  back!  It  is  just  the 
discrimination  among  applications  which  makes  this 
credit  so  fruitful.  That  is  of  the  very  essence  of  Co- 
operative Credit,  the  foundation  stone  upon  which  it  is 
reared  up.  Its  object  is  to  stimulate  provident,  and 
to  discourage  improvident  credit.  As  I  ventured  to 
put  it  more  than  twenty  years  ago  in  an  article  pub- 
lished in  the  "  Economic  Review,"  Co-operative  Bank- 
ing deliberately  "  makes  lending  in  the  cases  to  which 
it  appli'es  difficult,  in  order  to  make  it  possible."  That 
of  necessity  implies  refusals  —  which  would  be  more 
plentiful  if  earlier  refusals  had  not  happily  already 
graven  the  wholesome  lesson  of  such  testing  on  men's 
minds.  People  do  not  carry  cases  into  Court  upon  the 
principle  of  which  judgment  has  already  been  delivered. 
And  that  tells,  in  a  manner,  the  whole  story  of  Co- 


CONCLUSION  317 

operative  Credit.  It  has  come  into  the  world  to  do 
a  new  thing,  to  discharge  a  task  which  without  it  was 
not  and  could  not  be  performed.  It  does  not  come  for- 
ward as  a  rival  to  any  other  institution  —  except  the 
usurer.  It  does  not  aim  at  crowding  out  other  pro- 
moters of  thrift  or  credit.  The  savings  banks  have 
suffered  no  damage  by  it,  as  Managers  of  Savings  Banks 
have  particularly  assured  me.  In  Italy  —  in  that  part 
of  the  country  in  which  co-operative  banks  are  strongest 
—  they  have  brought  out  their  books  to  show  me  that 
the  co-operative  banks,  with  all  their  taking  of  deposits, 
have  made  no  inroad  upon  their  own  business.  The 
saving  which  they  stimulated  was  new  saving.  Neither 
have  joint  stock  banks  suffered  damage.  Notable 
bankers  like  the  late  Lord  Avebury,  previously  Sir 
John  Lubbock,  have  openly  espoused  their  cause  and 
publicly  pleaded  for  them  —  Sir  John  Lubbock  did 
so  in  Parliament  —  as  a  desirable  public  benefit.  The 
National  Congress  of  German  Bankers,  the  benches  of 
which  were  filled  for  the  most  part  with  representatives 
of  large  banks,  meeting  at  Munich  a  few  years  ago,  by 
resolution  declared  its  opinion  to  the  effect  that  there 
is  ample  room  for  co-operative  banks  by  the  side  of 
their  own  institutions,  and  that  such  banks  discharge 
a  most  useful  public  service.  American  bankers  need 
therefore  be  in  no  state  of  tremor  at  the  coming  of  Co- 
operation. They  cater  for  a  different  class  of  men,  for 
whom  co-operative  banks  would  scarcely  be  appropriate, 
just  as  little  as  joint  stock  banks  would  be  appropriate 
for  the  "patrons  "  of  co-operative  banks.  Indeed  they 
act  the  useful  part  of  feeders  and  recruiting  sergeants 


318  CO-OPERATIVE  CREDIT 

by  joint  stock  banks,  training  clients  for  them,  who 
otherwise  would  not  be  brought  to  their  counters,  just 
as  the  useful  little  '^  collecting  societies  "  picking  up 
coppers  from  humble  working  folk,  train  these  to  be- 
come customers  of  the  large  Savings  Banks.  The  truth 
is  that  the  world  has  grown  and  that  the  increasing 
compass  of  its  business  has  made  it  necessary  in  all 
branches  of  business  to  "  specialise."  We  want  to 
"  specialise  "  in  banking  as  in  everything  else.  With 
the  world's  growth  requirements  have  multiplied. 
There  are  more  people  in  it.  And  there  are  plenty 
more  people  to-day  who  desire  credit,  in  comparison 
with  what  there  were  a  generation,  or  two  ago.  As  the 
man  so  is  the  service.  A  petit  mercier  petit  panier, 
say  the  French.  Banking,  like  other  interests,  in  Leon 
d'Andrimont's  words,  wants  today  to  be  "democra- 
tised "  for  the  many.  The  small  trader  must  have 
credit  —  well  organised  bank  credit  on  reasonable 
terms.  The  small  manufacturer  wants  it.  The  farmer 
wants  it  very  badly  —  his  is  the  crying  need  of  the  day. 
There  is  for  him,  in  Thomson's  words,  "  wealth  for 
honest  labour,"  provided  that  he  can  procure  for  himself 
that  whereon  to  expend  his  labour.  The  jobbing  ar- 
tisan stands  in  need  of  credit.  And  so  does  the  work- 
ing man  who,  following  a  natural  bent,  implanted  in 
him  by  Providence,  like  a  certain  potentate,  seeks  "  a 
place  in  the  sun  "  —  the  sun  of  independence  and  self- 
emplojTnent.  All  such  needs — or  most  of  them  —  a 
joint  stock  bank  is  not  in  a  position  to  supply.  It  aims 
above  the  heads  of  the  people  concerned  and  shrinks 
from    handling    small    change.     However    the    world 


CONCLUSION.  319 

wants  buggies  as  well  as  coaches,  and  country  traps  as 
well  as  railway  trains.  There  want  to  be  cheap  bread 
and  tea  shops  by  the  side  of  the  great  Waldorf  Hotels. 
The  question  now  claims  to  be  answered:  Has  this 
good  fairy  of  Co-operative  Credit,  so  long  neglected  on 
the  western  side  of  the  Atlantic,  no  good  gifts  in  store 
for  the  great  American  Republic?  Is  that  the  only 
country  in  which  there  is  no  room  for  it  ?  One  would 
think  that  with  its  teeming  millions,  its  vast  treasure 
of  still  undeveloped  or  only  partially  developed  re- 
sources—  such  as  that  immeasurable  expense  of  land, 
to  which  for  want  of  working  capital,  on  the  unanimous 
showing  of  the  most  competent  authorities,  quite  insuf- 
ficient justice  is  being  done  —  with  its  wealth  of  only 
partially  employed  productive  power,  and  the  remark- 
able energy  of  its  people,  brimming  over  with  "  ideas," 
the  United  States  would  be  the  very  country  of  all  others 
for  this  money  coining  power.  Its  record  in  the  prov- 
ince of  combined  effort  is  really  unique.  The  huge 
number  of  its  associated  enterprises  termed  "  co-oper- 
ative "  by  its  vastness  —  as  I  have  expressed  it  else- 
where —  quite  takes  away  the  breath  of  European 
co-operators.  There  are  such  a  number  of  them  and 
their  transactions  are  so  huge.  That  serried  host  of 
Building  and  Loan  Societies  —  depending  as  a  matter 
of  course  on  associated  effort  —  now  that  the  "  na- 
tional "  societies  and  other  abortions  have  been  weeded 
out,  stands  one  of  the  peculiar  economic  glories  of  the 
States.  And  indeed  the  United  States  have  already, 
and  not  unsuccessfully,  tried  their  hand  upon  the  very 
form  of  Co-operation  now  under  consideration.     Pre- 


320  CO-OPERATIVE  CREDIT 

ciselj  what  those  "  People's  banks  "  were  which  in  their 
modest  way  flourished  in  some  of  the  States  before  the 
Civil  War,  we  cannot  to-day  quite  ascertain,  because  no 
record  of  their  organisation  and  business  has  been  pre- 
served. Jjut  there  is  a  Eeport  by  a  United  States  Com- 
mission charged  by  its  Government  with  an  inquiry, 
into  their  doings,  which  shows  that  with  the  exception, 
of  those  located  in  New  York — whose  committees  were 
led  astray  by  eagerness  for  gain  into  speculation  — 
they  answered  their  purpose  and  did  well  in  a  small 
way.  They  were  still  in  their  infancy  and  evidently 
organised  only  on  a  very  humble  scale.  However  in 
the  words  of  the  Commission  they  have  "  demonstrated 
beyond  doubt  that,  with  equal  prudence  and  intelligence 
on  the  part  of  the  lender,  loans  to  the  indusLrious  and 
economical  poor  are  as  safe  as  tliose  made  to  any  class 
whatever  of  the  rich." 

There  could  not  be  a  better  send-off  to  the  movement 
now  proposed.  As  for  the  want  of  it,  one  would  say 
that  after  all  that  has  been  set  forth  by  three  successive 
Presidents  and  a  great  number  of  other  competent  au- 
thorities, anent  the  backward  state  of  Agriculture,  with 
its  rapid  exhaustion  of  natural  fertility,  its  poor  yield 
of  produce  and  its  undeveloped  methods  —  in  that 
province,  at  any  rate,  there  can  be  no  doubt  whatever. 
And  when  we  look  at  industrial  centres,  what  do  we 
find  ?  A  handful  of  millionaires  and  an  innumerable 
host  of  have-nots,  held  in  servitude  and  often  slaving 
for  a  pittance,  making  true  the  saying  that  their  exist- 
ence "  is  a  being,  not  a  living."  Many  of  these  men 
surely  must  have  "  ideas  "  which,  translated  into  ac- 


CONCLUSION  S21 

tion,  with  the  aid  of  borrowed  cash,  would  rapidly  fruc- 
tify into  wealth  and  make  repajnnent  easy.  The  exist- 
ence of  a  want  cannot  therefore  really  come  into  ques- 
tion. There  is  in  fact  an  actual  cry  for  co-operative 
credit  —  inarticulate  still,  but  yet  very  audible;  and, 
as  lawyers  put  it,  res  ipsa  loquitur  —  that  is,  facts  speak 
for  themselves;  there  is  no  further  need  of  argument. 

No  doubt,  in  connection  with  such  a  state  of  things, 
there  are  in  the  United  States  special  circumstances  to 
be  taken  into  consideration.  In  the  United  States,  of 
all  countries,  it  would  not  do  to  "  take  a  German  plant  " 
—  as  I  have  described  the  process  when  speaking  of 
Leon  d'Andrimont's  pioneer  work  in  Belgium  —  "  and 
put  it  into  an  American  pot."  Americans  will  rather 
want  in  their  own  way  to  follow  M.  Luzzatti's  example, 
of  which  he  himself  says :  "  We  have  not  copied  an 
institution,  but  produced  a  new  type,  and,  impressing 
upon  it  the  stamp  of  Italian  originality,  we  have  created 
the  handle  popolari." 

Well,  there  is  ample  scope  for  that.  Justice  may 
even  be  done  to  the  American  predilection  for  patronis- 
ing something  "  of  its  very  own."  The  pruiciple  of 
Co-operative  Credit  is  hard  as  adamant  and  cannot 
without  prejudice  be  bent  or  tampered  with.  That  is  a 
matter  of  business  and  economics.  There  must  be  full 
security  for  the  giver  of  money;  there  must  be  safety 
for  the  intermediate  employer  of  money;  there  must 
be  government  of  all,  for  all,  a  machine  working,  in 
which  every  spring  and  every  wheel  is  called  upon  to  do 
its  own  particular  work,  so  that  there  may  be  life  dif- 
fused over  all  parts;  and  there  must  be,  as  the  soul  of 


322  CO-OPERATIVE  CREDIT 

the  whole  thing,  a  highly  awakened  sense  of  responsi- 
bility in  all.  But  in  the  form  of  its  application  Co- 
operative Credit  is  as  malleable  and  ductile  as  soft 
metal.  There  already  exist  a  variety  of  forms  such  as 
Schulze-Delitzsch  and  Raiffeisen  never  dreamt  of.  M. 
Luzzatti  recast  the  production  of  his  venerated  "  su- 
preme master  "  entirely  without  detriment  to  its  prin- 
ciple. In  India  we  have  had  to  hammer  the  system 
about  not  a  little  to  make  it  applicable  to  the  case  of  the 
untutored  rayat.  You  may  choose  to-day  as  you  please. 
You  may  have  shares  or  no  shares,  large  shares  or 
small,  liability  limited  or  unlimited,  a  large  governing 
body  or  a  small,  you  may  raise  money  by  deposits  or 
by  loan,  you  may  lend  for  a  long  term  or  a  short.  And 
in  all  probability  there  are  further  modifications  still 
conceivable,  such  as,  to  suit  American  conditions,  a 
cute  American  may  hit  upon.  It  would  be  the  most 
absurd,  suicidal  pedantry  to  want  to  insist  upon  a 
stereotyped  form,  not  to  make  allowance  for  local  cir- 
cumstances, which  —  quite  on  the  contrary  —  should 
in  every  case  be  the  determining  factor.  Ehineland  is 
thickly  peopled,  accordingly  its  rural  societies  are 
small.  In  Finland  the  population  is  widely  scattered. 
And  there  good  practical  minded  organisers  Have  de- 
tected means  of  extending  districts  without  prejudice 
to  the  working.  In  the  district  in  Germany  in  which 
a  long  time  ago  for  about  six  years  I  owned  some  prop- 
erty —  where  I  became  a  member  of  the  Silesian  land- 
scliafi  —  I  have  found  a  Raiffeisen  bank  made  prac- 
ticable for  five  separate  districts,  whereas  Raiffeisen 
recommended  one  for  each  parish;  but  the  quintuple 


CONCLUSION  323 

bank  worked  well.  So  it  is,  once  more,  with  the 
record  of  the  loans.  The  German  peasantry  are  afraid 
at  the  sight  of  a  promissory  note.  Accordingly  the 
Eaiffeisen  banks  make  a  great  point  of  it  that  they 
employ  none,  as  between  bank  and  borrower.  In  Italy 
promissory  notes  are  the  general  rule.  You  do  not 
want  to  look  at  such  minor  difficulties ;  they  may  easily 
be  swept  away.  Your  Building  and  Loan  Societies 
were  suggested  by  our  British  Building  Societies.  But 
for  a  long  time,  at  any  rate,  they  took  a  very  different 
form  —  which  invested  them  with  all  the  more  interest. 
In  India  the  same  prototype  suggested  the  niddhisj  but 
these,  once  more,  were  moulded  into  a  new  shape  to 
suit  their  environment.  Hold  fast  the  principle,  make 
yourselves  well  acquainted  with  that !  And  the  rest  is 
all  "  but  leather  and  prunella."  Once  you  really  want 
co-operative  banks,  and  feel  that  you  want  them,  your 
case  must  be  an  extraordinary  one  if  the  principle  can- 
not be  so  handled  as  to  suit  it. 

Some  suggestions  for  setting  to  work  about  this  mat- 
ter it  will  probably  be  judged  permissible  to  offer. 

Legislation  —  by  which  one  need  really  not  set  too 
much  store;  the  main  point  is  that  it  should  not  be 
framed  so  as  to  tie  societies'  hands  and  create  additional 
difficulties  —  will,  as  observed,  have  to  be  by  States. 
But  it  will  be  a  great  help  to  the  movement  if  ex-Presi- 
dent Taft's  suggestion  can  be  acted  upon  and  common 
principles  can  be  agreed  to.  To  have  all  banks  through- 
out the  Federation  alike  in  their  main  features  —  ac- 
cording to  the  type  adopted  —  is  bound  to  add  to  their 
power  and  utility.     We  have  seen  what  a  substantial 


324  CO-OPERATIVE  CREDIT 

increment  of  strength  union  has  given  to  the  German 
Schulze-Delitzsch  banks  in  comparison  with  the  Italian 
handle.  To  be  of  the  Union  is  equivalent  to  a  certifi- 
cate of  quality.  You  know  in  every  instance  how  your 
business  will  be  carried  out,  how  you  will  be  treated. 
The  same  feature  of  essential  unity  ought,  if  possible, 
to  be  communicated  to  the  propagandist  movement. 
There  may  be  rival  schemes.  But  that  is  an  evil  to  be 
put  up  with  in  the  initial  stage  —  in  which  it  may  in- 
deed conceivably  be  made  to  serve  useful  purposes. 
But  it  should  not  be  needlessly  magnified.  In  Ehine- 
land  —  which  is  in  one  sense  the  cradle  of  agricultural 
co-operative  credit  —  at  one  time,  what  with  the  rivalry 
in  progress  among  five  different  propagandist  associa- 
tions, each  disparaging  the  other  —  for  various  co-oper- 
ative schools  have  at  times  hated  one  another  like  cat 
and  dog  —  people  grew  so  frightened  over  all  this  mu- 
tual backbiting  that  they  felt  inclined  to  set  downi  the 
whole  thing  as  humbug.  And  it  was  mainly  to  put  a 
stop  to  this  that  the  Raiffeisen  Union  and  its  epigone, 
the  Imperial  Union,  combined  to  a  working  entente. 
There  will  be  so  much  to  teach  that  needless  rivalry  will 
have  to  be  deprecated. 

There  are  Americans,  as  there  have  been  Europeans, 
who  for  the  creation  of  banks  look  with  wistful  eyes  to 
the  State  as  a  helping  fairy.  Well,  in  the  matter  of 
teaching  and  preparing  the  ground  Government  au- 
thorities are  welcome  to  render  as  much  help  as  they 
please,  so  long  as  it  is  given  in  the  right  way.  There 
is  no  harm  in  that.  It  is  the  husiness  activity  of  co- 
operative societies,  above  all  of  co-operative  banks,  that 


CONCLUSION  325 

the  State  should  carefully  keep  its  hands  from.  To 
such  an  extent  may  the  argument,  which  is  so  fre- 
quently abused,  be  allowed,  that  Co-operation  promising 
to  prove  a  public  benefit,  the  community  may  be  made 
to  contribute  to  its  creation.  If  carried  to  the  length 
of  support  in  business,  such  contribution  destroys  the 
benefit  and  converts  it  into  a  sore.  But  in  providing 
facilities  for  teaching  it  may  have  its  full  swing. 

To  return  to  the  point  of  unity,  nothing  is  likely  to 
further  the  movement  more  than  its  extension  over  a 
wide  area,  in  which  there  are  sure  to  be  many  heads 
with  differing  ideas,  a  variety  of  circumstances,  and 
aids  and  hindrances  of  different  kinds  —  more  espe- 
cially when  the  object  is  by  means  of  common  counsel 
to  hammer  out  of  the  material  provided  something  that 
is  specifically  American.  Accordingly  an  all-Federa- 
tion movement  promises  to  be  distinctly  more  fruitful 
than  a  mere  sectional  movement.  The  mere  publicity 
thereby  given  is  likely,  by  means  of  the  interest  awak- 
ened, to  impart  a  new  stimulus.  But,  apart  from  that, 
mind  acting  upon  mind,  like  steel  sharpening  steel,  and 
experience  here  brought  into  comparison  with  exper- 
ience there,  may  be  counted  upon  to  produce  good. 

It  will  be  well,  next,  from  the  outset  to  abstain  from 
pitching  one's  immediate  expectations  too  high.  Co- 
operative credit  is  an  economic  force  which  can  ac- 
complish certain  things  —  performing  within  such 
bounds  what  have  rightly  been  called  wonders  —  but 
which  cannot  do  more.  It  is  no  panacea,  no  instru- 
ment to  serve  for  all  purposes.  The  late  Ernest  Bre- 
lay  —  not  a  co-operator  himself ;   rather  the  reverse ; 


326  CO-OPERATIVE  CREDIT 

but  greatly  struck  with  the  remarkable  successes  of 
Co-operative  Credit  —  declared  that  there  was  abso- 
lutely no  limit  to  its  power.  Aud  so  some  ardent  co- 
operators  think  with  him.  Eut  in  truth  that  power, 
large  as  it  is,  is  distinctly  limited;  aud  whoever  at- 
tempts to  employ  it  beyond  those  bounds  is  sure  to  en- 
counter disappointment.  The  success  of  such  power 
is  dependent  upon  certain  conditions,  in  the  absence  of 
which  Co-operative  Credit  should  not  be  attempted. 
There  must  be  a  realised  want  of  it;  also  a  readiness 
to  take  it  up  and  to  make  efforts  and,  it  may  be,  sacri- 
fices, for  its  success,  under  the  conviction  that  that  will 
be  to  one's  own  lasting  benefit.  The  ascent  is  some- 
times arduous.  "  You  have  no  idea,"  so  Herr  Mager, 
an  Inspector  of  Banks,  some  years  ago  remarked  to  a 
Congress  of  co-operative  credit  societies,  of  whose  Union 
he  is  a  Vice-President,  "  you,  none  of  you,  have  any 
idea  of  the  severe  struggle  that  some  of  the  older  co- 
operative credit  societies  have  had  to  pass  through; 
but  the  result  is  that  they  are  now  thoroughly  sound 
societies,  which  know  the  value  of  money ;  and  we  may 
make  quite  sure  that  they  will  not  place  any  money 
which  we  may  entrust  to  them  in  jeopardy."  That  is 
the  right  spirit.  ''  Vouloir,"  so  laid  it  down  one  of 
the  best  leaders  of  the  co-operative  credit  movement, 
the  late  Leon  d'Andrimont,  "  voila  de  grand  mot  de  la 
Cooperation,  sa  raison  d'etre,  la  garantie  de  son  succes." 
Apart  from  that,  there  must  be  an  appropriate  en- 
vironment, a  congenial  organisation  of  a  society.  You 
want  above  all  things  touch  among  intending  members. 
One  system  permits  of  large  districts,  another  impera- 


CONCLUSION  S27 

lively  demands  small.  But,  whether  large  or  small, 
there  must  be  touch ;  for  there  must  be  control  and  there 
must  be  knowledge  of  one  another,  which  is  impossible 
without  touch.  There  must,  furthermore,  be  the  right 
sort  of  employment  for  credit,  and  the  right  sort  of 
people  to  use  it.  Without  all  these  things  the  task  is 
hopeless. 

From  what  has  been  said  it  follows,  among  other 
things,  that  you  must  not  be  in  an  overgreat  hurry  to 
form  co-operative  banks  and  to  look  for  results.  Such 
banks  want  to  grow  out  of  their  own  need.  Excessive 
impatience  is  one  of  the  curses  of  our  age.  All  well- 
meaning  people,  when  they  have  discovered  a  good 
thing,  burn  with  impatience  to  see  it  covering  the 
earth's  surface  with  its  institutions.  That  has  led  to 
many  failures  and  to  a  great  deal  of  false  co-operation 
which  may,  like  Potemkin's  famous  dummy  villages, 
satisfy  the  eye  of  a  credulous  and  exacting  taskmaster, 
but  stand  for  no  genuine  improvement.  We  have  seen 
the  matter  tellingly  illustrated  in  the  British  Isles. 
The  idea  of  co-operative  credit  was  taken  up  at  precisely 
the  same  date  both  in  England  and  in  Ireland.  In  fact 
England  had  the  start  by  about  eight  months.  How- 
ever people  there  cared  more  for  results  than  for  prin- 
ciples. They  did  not  trouble  to  master  the  latter. 
They  wanted  to  see  banks  springing  up  out  of  the 
ground  like  Pompey's  famous  legions,  here,  there,  every- 
where, casting  their  blessings  abroad,  and  be  able  to 
take  credit  for  such  success  to  themselves.  "'  Do  not 
tell  us  about  principles,"  that  was  the  message  that  an 
admirably  philanthropic  captain  of  industry,  then  in 


328  CO-OPERATIVE  CREDIT 

the  Commons,  sent  up  to  me  while  I  was  addressing  a 
gathering  of  Members  of  Parliament  in  a  Committee 
room  at  Westminster  twenty  years  ago ;  "  give  us  the 
rules ;  we  will  find  the  money."  Now,  as  it  happens,  in 
Co-operative  Credit  principles  stand  for  everything 
and  money  is  but  a  tool  which  can  readily  be  obtained. 
Our  various  propagandist  associations,  changing  their 
name  from  time  to  time,  but  not  their  insufficiently  in- 
formed guiding  head,  laid  themselves  out  for  "  results," 
sending  uninstructed  '^  organising  secretaries  "  abroad 
to  "  form  banks."  The  upshot  is  that  we  have  after 
more  than  twenty  years  little  more  than  nothing  to  show. 
Sir  Horace  Plunkett,  in  Ireland,  determined  to  go  the 
opposite  way  to  work.  His  colleagues,  on  the  Commit- 
tee of  the  Irish  Agricultural  Organisation  Society, 
heckled  me  on  my  first  propagandist  visit  to  Dublin,  as 
I  have  never  been  heckled  before  or  since.  They 
wanted  to  know  everything  about  every  point.  The  re- 
sult is  that  they  have  correctly  mastered  the  principle 
—  which,  as  observed,  is  everything  —  and  easily  pro- 
duced banks,  which  have  done  admirable  work.  Xot 
too  many.  They  cannot  make  a  boastful  show  of  im- 
posing figures.  "  Let  us  have  few,  if  it  must  be  so," 
that  was  practically  Sir  Horace's  instruction,  "  but  let 
those  few  be  good ;  provided  that  they  are  so  they  may 
be  trusted  in  course  of  time  to  produce  a  large  host 
that  may  be  relied  upon  to  serve  as  useful  models." 
The  Registrars  in  India  are  proceeding  on  precisely  the 
same  sound  principle,  walking  circumspectly,  not  as 
fools  but  as  wise,  although  they  cannot  altogether  re- 
strain  the   tremendous   impatience   which    drives   the 


CONCLUSION  329 

usury-stricken  rayat  into  seeking  relief  in  co-operative 
banks.  As  far  as  they  can  tliey  apply  the  brake  of 
vigilant  examination  and  sifting.  Obviously  banks 
carelessly  formed  or  faultily  administered  are  bound  to 
damage  the  cause  and  lead  people  rather  to  abstain  than 
to  follow  their  example.  A  bad  bank  is  a  snare,  be  it 
ever  so  well  endowed  or  pretentiously  patronised.  You 
cannot  produce  a  sturdy  plant  in  a  forcing  hothouse. 
And  your  co-operative  banks,  to  be  of  any  use,  want  to 
be  as  an  oak  that  will  "  brave  the  tempest  and  the 
breeze."  Co-operative  banking  is  not  a  matter  of  a 
"  trick."  All  those  State-endowed  or  patron-led  co- 
operative banks  of  part  of  the  European  Continent  — 
which  present  so  imposing  an  appearance  on  paper  by 
their  numbers,  but  make  sad  the  heart  of  good  co-oper- 
ators, and  cost  the  taxpayers  so  much  money  which  does 
not  return,  while  producing  mere  parasites  and  leeches 
—  are  the  result  of  impatience.  Better  let  the  move- 
ment run  its  normal  course.  Those  impatient  Govern- 
ments which  —  rightly  enough  —  desire  to  favour  the 
cause  of  what  ought  to  be  for  the  people  an  unmixed 
blessing,  would  have  done  far  better  to  have  sent  com- 
petent teachers  about  to  instruct  the  people  on  the 
principles  of  co-operative  credit  —  they  need  grudge  no 
money  for  that —  leaving  the  people  themselves  to  de- 
cide whether  they  would  try  a  bank,  than  to  urge  them 
to  form  such  and  to  bribe  them  to  it  by  gifts  handed 
over  as  such  or  else  presented  under  the  mask  of  repay- 
able advances  which  are  not  repaid.  More  haste  in  this 
case  is  likely  to  prove  worse  speed.  You  will  not  want 
to  see  in  your  country,  as  has  happened  in  Austria,  un- 


330  CO-OPERATIVE  CREDIT 

der  the  principle  here  denounced,  16,953  banks  formed, 
of  which  3,660  soon  had  to  shut  up  shop.  Propagan- 
dists' and  organisers'  great  care  should  be  to  form 
good  banks  only,  in  places  where  banks  bid  fair  to 
prosper.  And  all  this  implies,  so  it  may  be  well  to 
point  out,  that  the  intended  teachers  should  be  them- 
selves first  well  taught.  This  is  a  practical  matter,  for 
which  mere  book-learning  and  cogitation  will  not  suffice. 
We  of  the  twentieth  centur}''  possess  this  advantage  that 
the  ground  has  been  planed  for  us.  We  need  no  longer 
go  about  groping  our  way,  as  our  precursors  had  to  do. 
There  are  good  banks,  tested  by  experience,  in  exist- 
ence, to  teach  us.  That  is  another  mistake  that  leaders  of 
the  movement  in  England  have  made.  They  evidently 
thought  that  any  one  would  do  to  teach  the  proper 
methods.  We  now  see  how  grievously  they  miscalcu- 
lated. One  of  the  first  and  most  successful  pioneers 
of  the  movement  in  India,  ]\Ir.  R.  Gourlay,  having  been 
introduced  by  me  to  the  heads  of  most  of  the  various 
continental  Unions,  made  a  point  of  spending  four 
weeks  at  Xeuwied,  to  see  the  Eaiifeisen  system  at  work 
with  his  own  eyes.  And  he  tells  me  that  nothing  has 
stood  him  in  so  great  stead  in  his  organising  practice 
as  what  he  learnt  there. 

And,  next,  it  is  important  that  every  bank  formed 
should  have  its  own  peculiar  solid  foundation.  In  the 
race  for  rapid  results  we  are  tempted  to  think  in  a 
wholesale  way  —  form  many  banks,  unite  them  in  one 
centre  and  interconnect  them  in  their  work  and  in  their 
liability!  That  would  be  a  serious  mistake.  There 
can  be  no  enduring  success  on  such  lines.     Of  all  dan- 


CONCLUSION  381 

gers  that  which  co-operative  banks  will  have  to  be  most 
careful  to  avoid  is  that  of  interconnected  liability.  In 
co-operative  banking  everything  depends  upon  "  divid- 
ing down "  responsibility  which  means  liability ;  and 
of  such  liability  every  one  who  undertakes  it  ought  to 
be  absolute  master.  They  have  a  homely  word  in  Ger- 
many, much  used  by  way  of  warning  in  this  connection, 
which  is  intended  to  describe  the  condition  of  banks 
interconnecting  their  liability.  It  is  7'atten1cdnig, 
"  king-rat,"  that  is,  the  rat  which  has  gobbled  up  all 
the  other  rats  and  has  thereby  become  a  deadly  terror 
to  the  murine  species,  since  it  is  given  to  murine  can- 
nibalism. It  is  the  bad  bank  which  will  in  this  way  in 
the  end  in  the  same  way  gobble  up  the  good  ones,  sup- 
posing that  they  are  confiding  enough  to  pool  their  lia- 
bility with  that  of  the  bad  bank.  Union  is  a  capital 
thing,  in  the  present  connection  as  in  others.  It  is 
really  only  Co-operation  carried  one  step  further,  and 
is  therefore  in  full  keeping  with  our  general  task.  But 
it  should  come  in  the  shape  of  a  federation  which  leaves 
every  unit  standing  upon  its  own  financial  foundation, 
answering  for  itself.  That  is  why  central  banks  should 
not  be  formed  with  other  than  strictly  limited  liability. 
But  in  any  case  Union  cannot  come  until  there  are 
units  to  unite.  It  is  the  good,  sound  bricks  which 
make  the  enduring  building.  You  may  raise  up  a  wall 
with  jerry  bricks  kept  together  by  the  mortar  which 
unites  them.  But  that  wall  will  not  stand.  Co-opera- 
tors aim  at  something  that  may  be  relied  upon  to  en- 
dure, and  in  it  every  brick  wants  to  be  of  good  sound 
quality,  and  able  to  answer  for  itself.     If  there  is  to 


332  CO-OPERATIVE  CREDIT 

be  a  central  bank,  such  bank  will  have  to  consist  of  in- 
dependent banks  each  staking  its  own  limited  share  and 
retaining  control  over  its  own  liability.  A  central  bank 
which  is  not  managed  by  its  own  constituent  members  is 
not  a  central  bank  at  all,  but  a  foreign  institution,  just 
doing  business  with  co-operative  banks  as  standing  out- 
side their  host ;  and,  if  treated  as  a  central  bank,  it  may 
become  a  danger. 

The  ground  being,  as  we  will  assume,  found  favour- 
able for  an  experiment  in  co-operative  banking,  an  im- 
portant question  to  decide  will  be  what  form  the  co- 
operative bank  proposed  is  to  take. 

jSTow  that  question  really,  as  matters  stand,  divides 
itself  into  two.  For  there  is  the  preliminary  point  to 
deal  with,  whether  preference  should  be  given  to  mort- 
gage credit  or  else  to  personal ;  and  after  that  the  point 
will  have  to  be  decided  which  particular  type  of  bank 
to  select. 

In  the  United  States  at  the  present  time  opinion 
appears  to  be  keenest  in  favour  of  mortgage  credit.  In- 
deed the  entire  agitation  now  in  progress  appears  to 
have  taken  its  rise  in  dissatisfaction  with  existing  ar- 
rangements for  real  estate  credit;  and  to  that  extent 
the  claims  of  personal  credit  are  in  some  danger  of 
being  overlooked  or  at  any  rate  more  lightly  appraised 
than  they  deserve.  Mortgage  credit  has  here  already 
been  dealt  with  in  a  separate  chapter,  and  there  reasons 
have  been  given,  or  suggestions  made,  why  mortgage 
credit  had,  perhaps,  in  its  earliest  stages  be  left  rather  to 
capitalist  than  to  co-operative  enterprise.  Not  that  there 
are  not  excellent  co-operative  mortgage  credit  societies. 


CONCLUSION  333 

However  their  number  is  comparatively  small,  and 
where  they  exist  they  have  been  called  forth  by  special 
circumstances  such  as  do  not  to  the  writer  appear  to 
exist  in  the  United  States.  To  judge  from  what  Amer- 
ican writers  say  on  the  subject,  when  praising  up  the 
landschaft  as  the  model  to  be  followed,  what  they  really 
mean  to  plead  for  is  the  principle  of  raising  money  by 
debentures  or  bonds,  so  as  to  make  the  provision  of  any 
share  capital  of  any  importance  unnecessary,  and  plac- 
ing such  bonds,  in  return  for  mortgages  of  equal  value, 
where  they  cannot,  except  for  default,  be  called  in  by 
the  lender  and  will  be  repayable  like  terminable  rent- 
charge.  Now  for  such  practice  you  do  not  need  a 
landschaft  at  all,  with  its  antiquated  feudal-bureau- 
cratic organisation,  its  scarcely  constitutional  priv- 
ileges, and  its  necessarily  cumbrous  methods  —  which 
are  really  what  puts  a  distinctive  stamp  upon  a  land- 
schaft. Other  bodies  may  raise  money  and  lend  it  out 
on  precisely  the  same  principles,  without  all  that  old- 
world  hocus  pocus.  The  Danish  mortgage  societies,  to 
state  one  instance,  are  not  landschaften  at  all,  although 
they  have  been  classed  as  such  by  some  American  writ- 
ers insufficiently  informed.  They  are  democratic  co- 
operative bodies  of  an  entirely  modern  cut.  If  you  de- 
cide to  have  corporate  bodies  of  what  you  are  pleased  to 
call  the  landschaft  type  right  from  the  start,  for  dealing 
out  mortgage  credit,  it  is  these  rather  that  you  should 
take  as  a  model  than  the  lumbering  and  clumsy  German 
landschaften,  which  have  done  well  nowhere  except 
where  there  are  magnate  rule  and  Crown  patronage,  as 
in  Germany  and  in  Hungary.     It  is  quite  true  that  in- 


334  CO-OPERATIVE  CREDIT 

dividual  capitalists  caunot  deal  in  mortgage  credit  on 
landschaft  lines.  Only  a  body  with  more  or  less  per- 
manent life  can  do  that.  However  joint  stock  mort- 
gage banks  are  in  a  position  to  serve  their  public  in 
precisely  the  same  way  as  landscliaften,  securing  them- 
selves by  contract  as  landscliaften  are  secured  by  anti- 
democratic privileges  —  more  particularly  under  mod- 
ern law,  which  has  provided  expeditious  processes  for 
urgent  cases.  And  such  companies  bid  fair  to  prove 
more  congenial  to  American  habits  and  temperament 
than  feudalized  landscliaften.  Eulogists  of  the  latter 
admit  that  the  methods  of  the  companies  are  as  efficient 
and  that  their  credit  is  as  cheap  as  in  the  case  of  laTid- 
schaften  —  more  businesslike  organisation  of  a  modern 
type  making  up  for  the  special  advantages  accorded  to 
landscliaften.  Things  in  America  appear  still,  at  any 
rate  in  many  sections,  in  too  unsettled  a  condition  to 
justify  a  rush-in  at  once  of  Co-operation.  Of  all 
agencies  Co-operation  necessarily  is  most  exacting  in  the 
requirement  of  settled  conditions,  just  because  it  is  a 
union  of  persons,  not  of  capitals  —  of  persons,  who 
want  more  or  less  to  know  one  another,  who  want  to  be 
able  to  trust  one  another,  and  who  want  to  know  that 
they  are  acting  together  for  a  certain  length  of  time,  as 
a  permanent  association.  Once  capitalism  has  ex- 
plored the  ground  and  detected  its  dangerous  spots,  it 
will  be  quite  time  enough  for  Co-operation  to  come  in, 
if  there  is  a  disposition  for  it,  as  a  competing  force. 
By  such  time  very  possibly  its  peculiar  postulates  will 
have  been  satisfied.  So  best  let  others  try  the  thickness 
of  the  ice. 


CONCLUSION  335 

For  mortgage  credit  neither  Schulze-Delitzsch  nor 
Eaiffeisen  banking  will  be  advisable,  save  in  quite  ex- 
ceptional cases  and  for  short  terms  only.  In  respect  of 
personal  credit  the  choice  practically  lies  between  them. 
You  may  adapt  them  in  form.  But  there  has  no  suc- 
cessful attempt  thus  far  been  made  to  get  away  from 
them  or  to  intermingle  them^  and  it  is  difficult  to  see 
how  either  the  one  thing  or  the  other  could  be  done 
without  detriment.  The  fundamental  principles  of 
credit  are  everywhere  the  same.  And  the  formal  ap- 
plication given  to  them  must  be  consistent  in  itself. 
You  cannot  take  a  little  of  one  and  a  little  of  the  other, 
combine,  as  it  is  sometimes  put,  "  the  best  features  "  — 
which  means  the  features  which  most  please  your  fancy 
— "  of  one  system  with  those  of  the  other."  Such 
attempts  invariably  end  in  an  economic  parallel  to  the 
famous  construction  of  a  supposed  ideal  human  body 
out  of  selected  parts  familiarly  associated  with  the 
name  of  "  Frankenstein."  In  each  system  every  partic- 
ular part  possesses  its  own  specific  justification  and 
raison  d'etre.  It  supplements  other  parts.  It  cogs 
into  them  like  one  wheel  in  a  piece  of  machinery  into 
another,  l^ot  only  is  this  so,  not  only  is  each  system 
compact  and  complete  within  itself,  but  people  will 
have  to  understand  to  a  greater  extent  than  appears  to 
be  the  case  at  present  that  one  system  suits  one  particu- 
lar set  of  circumstances,  the  other  another.  The  two 
are  like  a  workman's  implements,  one  of  which  is  em- 
ployed for  one  purpose,  the  other  for  another,  neither 
being  interchangeable. 

Public  opinion  in  the  United  States  is  at  present  evi- 


336  CO-OPERATIVE  CREDIT 

dently  very  much  taken  up  with  the  merits  —  rightly 
enough  freely  extolled  —  of  the  system  of  Eaiffeisen. 
That  system  has  indeed  great  triumphs  upon  which  to 
pride  itself,  and  constitutes  a  truly  admirable  machine 
for  what  Mr.  Gladstone,  as  already  shown,  has  called 
"  man-making."  That  is  its  object.  Just  as  Mr.  Glad- 
stone in  the  saying  already  quoted — which,  by  the  way, 
was  (phonographically)  addressed  to  an  American  audi- 
ence —  placed  "  thrift  " —  that  is,  the  improvement  of 
the  material  circumstances  of  a  man  —  as  the  first 
prerequisite  to  "  man-making,"  so  Raiffeisen  bases  his 
own  conquest  of  man  for  higher  purposes  upon  the  bet- 
tering of  his  economic  position.  To  be  full  "  man  " 
a  man  must  be  independent  and  master  of  his  own  ac- 
tions. Twenty  years  ago  the  late  General  Booth  im- 
pressed me  for  the  rather  difficult  task  of  devising  rules 
for  Raiffeisen  societies  to  be  formed  in  India  under 
Salvationist  authority  which,  so  far  from  being  demo- 
cratic, as  Raiffeisenism  demands,  is  strictly  military. 
"  My  difficulty,"  so  he  explained,  "  is  this :  as  soon  as 
my  officers  succeed  in  gaining  over  a  native  for  Chris- 
tianity, the  all-powerful,  omnipresent  usurer  steps  in 
with  his  unanswerable  veto :  if  you  become  a  Christian, 
I  sell  you  up.  Now,  to  meet  this,  we  must  have  your 
banks."  The  scheme  then  failed,  because  it  formed 
part  and  parcel  of  a  much  vaster  and  more  ambitious 
scheme  of  land  settlement  on  a  larger  scale,  which 
proved  impracticable.  However  General  Booth's  esti- 
mate of  the  situation  in  India  appears  fully  borne  out 
by  the  magnificent  spread  of  co-operative  banking  — 
mostly  of  the  Raiffeisen  type  —  in  India  at  the  present 


CONCLUSION  337 

day,  in  which,  it  may  be  added  that  Christian  mission- 
aries of  all  creeds  —  Church-of-England,  German  Luth- 
eran and  Eoman  Catholic  —  take  their  proper  part. 
In  one  way  or  another  that  unfortunate  servile  de- 
pendence upon  the  dollar  shows  itself  everywhere. 
Europe  has,  as  Gustav  Freytag  has  shown,  its  o^vn  type 
of  "  slave  life,"  and  so  has  America  —  as  crop  liens, 
store  liens  and  corn,  fruit  and  cattle  rings  testify. 
Therefore  if  man  is  to  be  turned  into  true  "  man,"  first 
of  all  his  material  condition  will  have  to  be  bettered. 
However  Raiffeisen's  real  aim  lies  beyond  that,  in  the 
creation  of  a  man  who,  as  the  late  D.  Schloss  —  who 
was  not  anything  of  an  enthusiast  —  expressed  it,  "  has 
the  fear  of  God  before  his  eyes."  Eaiffeisen's  work 
also  is,  as  the  German  Chancellor,  Herr  von  Bethmann 
Hollweg,  has  put  it,  eminently  "  detail  work."  It 
busies  itself  about  little  things,  being  done,  in  every 
single  instance,  on  a  small  scale.  It  requires  personal 
influence  of  one  man  upon  another.  Therefore  it  is 
applicable  only  in  small  districts.  Raiffeisen  put  the 
ideal  district  at  an  area  with  about  400  population, 
by  preference  a  single  parish.  And  so  highly  did  he 
rate  personal  influence  that  he  laid  it  down  that,  once 
a  good  chairman  was  found  and  a  good  secretary  or 
accountant,  work  might  forthwith  be  begun,  looking 
for  others  to  "  fall  in  "  as  time  went  on.  There  could 
be  no  greater  mistake  than  to  put  this  type  of  bank  into 
requisition  for  purely  business  purposes,  more  particu- 
larly on  a  large  scale.  Nevertheless  in  noble-minded 
people  the  temptation  to  do  so  is  evidently  strong.  In 
England,  some  eighteen  years  ago,  I  was  urged  by  a 


338  CO-OPERATIVE  CREDIT 

great  philanthropist  of  the  religious  sort,  the  late  Dr. 
Paton,  to  come  to  his  town,  Nottingham,  and  there  to 
assist  in  the  promotion  of  a  Raiffeisen  bank  in  a  rather 
distant  suburb.  A  visit  there  satisfied  me  that  that 
was  the  last  place  for  a  Eaiffeisen  bank  to  work  in. 
However  nothing  would  content  the  reverend  doctor, 
with  his  philanthropic  notions  except  "  Raiffeisen." 
The  scheme,  of  course,  did  not  "  come  up."  On  suit- 
able ground  there  is  nothing  more  admirable,  nothing 
more  effective  than  a  Raiffeisen  society.  The  sight 
of  its  work  carries  one  away  with  enthusiasm.  It 
gathers  local  people  together  like  a  hen  clucking  her 
chickens  under  her  wing,  and  it  reforms  them  and  ele- 
vates them.  I  have  told  elsewhere  the  story  of  the 
village  of  Frankenheim  in  Thuringia.  It  was  at  one 
time  a  veritable  pest  hole.  The  inhabitants  were  of  the 
roughest  sort,  ^o  one  would  trust  himself  into  their 
company.  They  were  given  to  thieving  and  fighting 
and  cheating,  and  there  was  scarcely  a  misdeed  per- 
petrated in  the  district  which  was  not  set  down  to  them 
as  a  matter  of  course.  As  a  matter  of  course  also  they 
were  miserably  poor.  They  dwelt  in  ramshackle  hovels 
which  were,  like  their  poor  skin-and-bone  cattle,  pledged 
roofhigh  to  the  usurer.  In  pity  the  consort  of  the  sov- 
ereign of  the  land,  the  late  Grandduchess  of  Saxe  Wei- 
mar, set  up  model  cottages  for  these  people  to  live  in 
at  a  nominal  rent  —  $7.50  a  year.  It  was  all  to  no 
purpose.  The  men  would  not  rent  the  cottages,  nor 
reform.  A  painstaking  clerg^nnan,  who  afterwards  be- 
came one  of  the  pillars  of  the  Raiffeisen  connection, 
came  into  the  parish.     He  started  a  Raiffeisen  society. 


CONCLUSION  339 

took  a  personal  interest  in  the  people,  showed  them 
how  to  get  rid  of  the  usurer,  how  to  set  up  their  own 
new  dwellings,  by  their  o'wn  efforts,  at  a  terminal  rent- 
charge  five  or  six  times  as  high  as  the  Grandduchess' 
rent,  taught  them  how  to  improve  their  agriculture  and 
to  secure  better  cattle  —  and  the  whole  face  of  things 
has  become  changed.  There  is  now  no  better  conducted 
and  better  conditioned  village  under  the  sun  than 
Frankenheim.  Similar  instances  might  be  quoted  in 
plenty  from  all  parts  of  Europe.  And  under  the  Eaif- 
feisen  system  people  become  bound  together,  as  a  Hun- 
garian Professor  has  expressed  it,  "  with  the  link  of 
true  brotherhood." 

Where  you  have  work  of  a  different  kind  to  ac- 
complish, you  will  have  to  seek  in  your  tool  chest  for 
a  different  instrument.  The  knife  for  cutting  and  the 
saw  for  sawing.  The  system  originated,  in  two  par- 
allel forms,  but  on  the  same  principle  and  with  the 
same  end  in  view,  severally  by  Schulze-Delitzsch  and 
Luzzatti  aims  only  indirectly  at  "  man-making,"  in  Mr. 
Gladstone's  sense  of  the  word.  Good  economics,  as  the 
Italian  statesman  Minghetti  has  put  it,  indeed  have  a 
natural  tendency  to  produce  also  good  morals,  and  M. 
Luzzatti  would  have  the  "  character  "  of  its  members 
rank  as  the  best  security  of  a  co-operative  bank.  But 
the  direct  aim  is  to  do  the  possible  best  with  every  man's 
dollar,  to  make  that  go  further,  with  a  view  to  adding 
more  dollars  to  it.  The  foundation  of  the  system  is 
capital  —  small  capital  at  first,  to  be  made  available 
for  better  work  by  union,  but  to  be  steadily  and  syste- 
matically added  to  as  a  matter  of  principle.     Eaiffeisen 


340  CO-OPERATIVE  CREDIT 

began  without  capital  and  worked  up  to  it  by  means  of 
that  unlimited  liability  which,  one  is  thankful  to  find, 
is  likely  to  have  fewer  difficulties  to  contend  with  in  the 
United  States  than  it  has  had  in  England.  For  in  a 
Eaiffeisen  bank  unlimited  liability  is  indispensable. 
That  intermediate  form  of  liability  which  is  so  common 
in  the  United  States,  as  it  is  on  the  European  Conti- 
nent, which  makes  a  shareholder  liable  for  something 
more  besides  his  paid-up  share,  must  prove  a  valuable 
help  to  banks  of  this  more  purely  businesslike  type,  be- 
cause it  gives  the  lender  after  all  more  ample  security 
for  his  money.  It  is,  by  the  way,  a  great  mistake  to 
suppose,  as  is  stated  in  one  or  two  American  books, 
that  co-operative  banks  based  upon  shares  all  have  lim- 
ited liability  only.  The  majority  of  those  German 
co-operative  banks,  which  take  the  lion's  share  of  the 
banking  output,  are  based  upon  unlimited  liability,  and 
pride  themselves  upon  it.  And  so  are  many  Austrian 
banks.  This  system  recks  little  of  districts  and  bound- 
aries. It  knows  how  to  overcome  difficulties  of  space. 
No  more  does  it  depend  upon  small  numbers.  You 
may  form  banks  under  it  of  any  size.  And  its  societies 
become  more  of  real  "  banks  "  —  by  reason  of  a  variety 
of  services  —  than  those  of  the  other.  It  is  a  great 
mistake  to  suppose,  as  some  people  do,  that  their  system 
is  not  applicable  to  Agriculture.  Under  it,  indeed, 
more  money  has  been  dealt  out  to  Agriculture  than  un- 
der the  Raiffeisen  system,  but  in  a  more  lumpy  way 
and  to,  in  the  main,  a  different  class  of  farmers,  with 
more    possessions    of    their    own.     Cremona,    Eovigo, 


CONCLUSION  341 

Augsburg,  Insterburg,  Cosel,  Gotha  and  more  besides, 
are  evidence  of  this. 

The  proper  environment  for  each  system  being  so 
clearly  marked  out,  the  choice  of  one  to  follow  ought 
not  really  to  present  any  serious  difficulty.  Very  little 
study  of  the  two  systems  and  of  the  particular  circum- 
stances of  a  district  ought  to  suffice  to  determine  that 
point. 

There  is  one  more  point  to  consider.  A  question  has 
lately  been  put  forward  in  American  literature  on  a 
subject  which  has  occasioned  not  a  little  discussion  in 
Europe,  namely,  whether  co-operative  trading  had  or 
had  better  not  be  combined  with  co-operative  banking. 
As  a  general  rule  it  will  be  best  to  keep  the  two  things 
entirely  distinct.  Certainly  this  ought  to  be  so  wher- 
ever either  banking  or  trading  assumes  at  all  substan- 
tial proportions.  The  great  discussion  in  Europe  arose 
over  the  combination  of  the  two  kinds  of  business  in 
certain  central  organisations,  in  which  it  certainly  was 
out  of  place  and  has  also,  on  the  ground  of  unsatisfac- 
tory results,  been  discontinued.  Kaiffeisen  made  his 
little  village  societies  veritable  "  maids-of-all-work " 
for  his  people  —  in  part  just  because  the  societies  were 
so  small  that  no  serious  inconvenience  was  likely  to 
arise  from  the  combination.  One  staff  would  be  suf- 
ficient for  all  purposes,  and  not  every  village  will  be  in 
a  position  to  produce  more  than  one  staff.  On  that 
ground  also  we  have  —  thus  far  unsuccessfully  — 
claimed  trading  powers  for  Kaiffeisen  societies  in  Ire- 
land.    And   there   is    another    reason    which    has   im- 


342  CO-OPERATIVE  CREDIT 

pelled  us.  Eural  Ireland  is  the  special  hunting  ground 
of  a  particularly  grasping  class  of  men  locally  known 
as  "  gombeenmen  " —  the  traders  who  lend  money  and 
buy  and  sell  goods,  and  who  do  all  this  business  at  a 
rate  of  profit  to  themselves  which  sucks  the  very  life- 
blood  out  of  their  victims  and  holds  them  in  perpetual 
peonage.  Our  banks  oust  him  from  his  coign  of  van- 
tage in  money  dealing.  However  he  knows  how  to 
make  up  for  that  in  dealing  in  goods.  At  the  same 
time  some  of  our  little  banks,  advisedly  charging  low 
terms,  net  little  of  an  annual  surplus.  Trading  would 
yield  them  a  certain  profit.  For  we  have  a  great  Co- 
operative Wholesale  Society  to  buy  from,  which  deals 
liberally  with  small  societies.  The  rate  of  surplus 
realised  on  distribution  is  now  as  a  rule  about  10  per 
cent.  This  would  be  a  great  help  towards  banking 
and  towards  co-operation  in  Agriculture  generally. 
Unfortunately  the  Irish  country  trade  is  rather  numer- 
ously represented  on  the  Irish  benches  in  Parliament, 
and  those  who  represent  it  do  not  like  to  think  of  hav- 
ing the  not  very  creditably  gotten  bread  taken  out  of 
their  mouths.  In  America  it  must  depend  upon  local 
circumstances  and  upon  the  size  and  nature  of  banks 
whether  it  is  opportune  and  legitimate  to  combine  the 
two  classes  of  business.  Certainly  such  combination 
should  not  be  carried  above  the  smallest  class  of  socie- 
ties. In  that  class  it  may  be  of  advantage  in  banks 
formed  on  Eaiffeisen  lines. 

What  with  a  general  disposition  leaning  to  common 
action,  with  a  tolerant  mind  with  regard  to  liability 


CONCLUSION  343 

and  with  an  acknowledged  want  of  more  ample  work- 
ing funds,  one  would  think  that  circumstances  in  the 
United  States  must  be  distinctly  favourable  to  the  for- 
mation of  co-operative  banks.  Whether  the  result  is 
destined  to  be  as  fruitful  as  the  general  aspect  of  things 
would  suggest,  can  be  decided  only  by  practical  experi- 
ment. Were  such  experiment  made  —  and  it  could  not 
in  any  case  lead  to  serious  loss  —  its  development  might 
be  relied  upon  soon  to  indicate  at  what  points  of  the 
European  system  modifications  are  desirable  to  meet 
American  conditions.  But  the  safest  plan,  so  one 
■would  think,  must  be  to  begin  with  that  which  has 
already  proved  so  richly  successful  everywhere,  under 
every  sky,  amid  all  races  and  for  all  classes  of  the 
humbler  sort  of  businessmen.  Whoever  knows  what 
enormous,  most  valuable  services  Co-operative  Banking 
has  it  in  its  power  to  render,  cannot  indeed  resist  a 
feeling  of  astonishment  at  the  fact  that  the  United 
States,  the  chosen  home  of  enterprise,  the  beehive  of 
business  with  its  many  millions  of  workers,  has  gone 
without  it  so  long.  Providence  appears  to  have  called 
commandingly  for  its  introduction  by  the  discovery 
made  that  American  Agriculture  is  retrograding  in- 
stead of  advancing,  that  fertility  is  being  exhausted, 
agricultural  enterprise  underpaid,  and  that  the  whilom 
granary  of  the  world  stands  in  danger  of  becoming  de- 
pendent for  food  upon  other,  more  thinkingly  strenu- 
ous, nations.  Please  God,  Co-operative  Banking  may 
carry  relief  and  improvement  with  it !  After  what  it 
has  accomplished  elsewhere,  there  seems  indeed  ground 


344  CO-OPERATIVE  CREDIT 

for  hoping  that  to  America  likewise  it  will  bring  those 
gifts,  that  wealth  diffused  among  the  many,  and  stimu- 
lus to  enterprise,  which  tend  to  make  a  prosperous  and 
contented  nation. 


THU    EKD 


IN'DEX 


Abuses,  77,   81,    139,   153,   155, 

161,     180,    181,    182,    190, 

202,  204. 
Acceptances,    136. 
Accountancy    (skilled),   189. 
Advances    on    shares,    80,    81, 

82. 
Agricultural    bank    of    Egypt, 

152. 
Agricultural  co-operation,   279. 
Agricultural  credit,  49,  93,  98, 

102,    103,    109,    110,     111, 

182,   184,   205,   209,   313. 
DiflBculties      in       connection 

with,    14,    16,   21,   59. 
Agricultural  decline,  9,   10. 
American    commission,     1,    62, 

118. 
d'Andrimont,  L6on,  60,  70,  85, 

321. 
Annual  report,  126. 
Audit,   89,    158. 
Augsburg  bank,  93. 
Austria,  73,  210. 
Avebury,  Lord,  217. 

Bad  banking,  329,  330. 
Balance  Sheet,  56,  106. 
Balancing  centre,  137. 
"  Bank    chain   to   kill   usury," 

21. 
Bank    money,    employment    of, 

74. 
Bank  of  borrowers,  43,  65. 
Banks    to    assist    co-operative 

societies,  84. 


Banques    populaires    (French), 
178. 

Belgium,    26,    60,    70,    85,    88, 
90,  91,   181,  263,  321. 

Bethmann-Hollweg,     von,     109, 
337. 

Bills  of  exchange,   75,   136. 

Blanqui,    14. 

Boerenbond      (Belgian),      195, 
263. 
(Dutch),   196. 

Book  keeping  control,   163. 

Building     and     loan     associa- 
tions, 21,  41,  64,  319. 

Bulgaria,    188. 

Burghardt  Du  Bois,  Mr.,  68. 

Canada,  25,  289. 

Capital   of  guarantee,   64. 

Carver,  Professor,  316. 

Cattedre  ambulanti,  215. 

Caution,  58,  61,  87,   127. 

"  Catholic  "      banks       ( Italy ) , 

194. 
(Switzerland),  196. 
Censeurs,  90. 
Central   banks,   134,   137,    139, 

140,    144,    178,    181,    201, 

332. 
Chattel   mortgages,    20. 
Character,    its    banking    value, 

31,  47,   48. 
Clashing  of   interests,   21. 
Control,   57,   87,   89,    127,    158, 

162. 
Consumers'  credit,  3. 


345 


346 


INDEX 


Co-operation,  24,  25. 
Co-operation      in      agriculture, 

279. 
Co-operation,    its    limits,    275, 

326. 
its  triumphs,   65,  274,   326. 
in  the  United  States,  28. 
Co-operative   banking    different 

from   other    banking,    165. 
Co-operative      banks      in      the 

United  States,  28,  320. 
Co-operative     banks     financing 

dairies,   85. 
Co-operative  credit,  need  of  it, 

1,  4,  5,  7,   11,   13,   16,  22, 

23,  24,  32,  39. 
its  object,  30. 
its    principles,    31,    41,    48, 

61,    91,    98,   99,    100,    117, 

321. 
in  Austria,  73,  210. 
in   Belgium,   26,   60,   70,   85, 

88,    89,    90,    91,    181,    263, 

321. 
in   Bulgaria,    185. 
in  Canada,  25,  289. 
in  Egypt,  178. 
in   Finland,   201,   212. 
in  France,  83,  116,  184,  185, 

205. 
'  in  Germany,  82,  88,  90,  98, 

132,   136. 
in   Hungary,    108,    179,    192, 

201. 
in  India,  25,  27,  96,  122,  168, 

200,  214,  334. 
in  Ireland,   163,   328,   342. 
in  Italy,  26,  72,  74,  77,  81, 

84,    86,    90,    92,    93,    105, 

132,   164,' 173,   194,  269. 
in  Japan,  25. 
in   Mauritius,    25. 
among   Poles,    143,    172. 
in  Roumania,    166,  211. 
in  Russia,  26,  213. 


in  Serbia,   184. 

in  Transylvania,   184. 

in   the   United   States,   300. 

its     practice,     42,     43,     103, 

117-125. 
effective,    22,    103,    106,    272, 

312,   315. 
damages  no  one,  317. 
its  variety,  26,   176,  312. 
its  out-turn,  25,  27,  315. 
a     feeder     to     other     banks, 

317. 
its  economic  effects,  4,  6,  7, 
8,  21,  27,  40,  41,  65,  272, 
312. 
its    educational    effects,    104, 
107,    122,    274,    284,    286. 
Co-operative   production,    278. 
Co-operative  wholesale  society's 

bank,    135. 
Council  of  supervision,  57,  58, 

87,   113,   125,   158,   159. 
Credit  to  be  personal,  50,  103. 
Credit     (non-co-operative),    75. 
Current  accounts,  75,  190. 


Danish  mortgage  societies,  244. 

Dealers'  credit,  20. 

Dealings  in  land,   128. 

Decline  of  American  agricul- 
ture, 9,  10. 

Democratisation  of  credit,  48, 
318. 

Deposits,  43,  67,   116. 

Dharma  golas,   102. 

Difficulties  of  beginning,  326. 

District    management,    93,    94. 

Dividend  rates  for  risk,  69, 
70. 

Dividend    (excessive),  70. 

Dividend  hunting,  180. 

Dividend  on  business,  181. 

Durand,   Louis,    116,    184,   185. 

Dock  warrant  credit,   83. 


INDEX 


347 


Educational  effects  of  co- 
operative credit,  104,  107, 
122,    274,    284,   286. 

Effective  co-operative  credit, 
22,  103,  106,  272,  312, 
315. 

Egypt,  170. 

Election   of   members,    48. 

Endowment  fund,    127. 

Entrance  fees,  45. 

Equal  rights  for  all,  79. 

Farmers'  credit,  49,  93,  98, 
102,  103,  109,  110,  111, 
182,    184,   205,   209,   313. 

Farms,  size  of,  16,  17. 

Ferraris,  Hon.  Maggiorino,  60. 

Financial  rating,  53,  54,  77, 
78,   79. 

Finland,  201,  212. 

Fortunato,    Giustino,   2,    72. 

"  Forty  per  cent,  interest,"  20. 

French  co-operative  credit,  83, 
116,    184,    185,    205. 

Friendly  societies'  act  (Brit- 
ish), 82,  294. 


Germany,   82,  88,   90,  93,    132, 

136. 
Gladstone,         W.         E.,         on 

"Thrift,"   313. 

Haas,  Dr.,  108,  186,  187. 
Haas    banks,     108,     188,     190, 

204. 
Haas    central    bank,    147,    151, 

154,  155. 
Haas  system,   108,   186,   189. 
Hov?     to      learn      co-operative 

banking,   330. 
How    wealthy   men    may    help, 

107,  108,   182. 
Hungary,  108,   179,   192,  201. 


Imperial    union    of    Germany, 

186,    188. 
India,  25,  27,  96,  122,  103,  200, 

214,  284,   334. 
Industrial        and        provident 

societies'     act      (British), 

82,  294. 
Industrial    co-operative    banks, 

59. 
Inspection   of    banks,    by    Gov- 
ernment,   171. 
by  central  banks,    155. 
by    imions,     161,     162,     171, 

173. 
Interest,   rate   of,   49,    61. 
Italian    co-operative    banks    in 

United  States,  300. 
Italy,   26,    72,   74,   77,   81,   84, 

86,    90,    92,    93,    105,    132, 

164,   173,   194,  269. 

Japan,  25. 

Kemmerer,  Prof.  E.  W.,  314. 
Kreditanstalt    (Leipzig),    233. 

Landschaften    (Prussian),  218, 
229-249. 
(Swedish),  228. 
( in      Southern      Germany ) , 
229. 
Landwirtschaftlicher,      Kredit- 

verein    (Saxony),  254. 
Large  districts,  93. 
Legislation,  26,  289. 
in  Austria,  87,  296. 
in    Germany,     82,    87,     162, 

173,    179,    296. 
in  Massachusetts,   293,   301. 
in  New  York,  293,  302. 
in   Texas,   293. 
in     the     United     Kingdom, 

213. 
in    the    United    States,    290, 
297,  301,  302. 


348 


INDEX 


in  Wisconsin,  297. 
Leipzig  bank,  93. 
Lending  made  difficult  to  make 

it   possible,   316. 
Liability      (limited),     its     ad- 
vantages,  69,   75. 
limited,  in  Raiffeisen  banks, 

109,   186. 
exceeding     value     of     shares 

subscribed,  69. 
not     to     be     interconnected, 
321. 
Limitation  of  dividend,  65. 
"  Loan   of   honour,"    92. 
Loans,  49,  79,  81. 
Luzzatti,    Hon.    Luigi,    26,    48, 
65,    72,    74,    90,    92,    127, 
132,   164,  311,  313,  321. 


Manuale   per    le   banche   popo- 

lari,  72. 
Massachusetts      credit     unions 

law,  298,  301. 
Mauritius,  25. 
Maximum     of     publicity,     54, 

56. 
Mentone     Co-operative     Bank, 

57. 
Micha,    Alfred,    181. 
Milan    Co-operative    Bank,    5G, 

65,  93. 
Mixed  membership,  59. 
Monti   Frumentari,    102. 
Morier,  Sir  R.,  54,  56. 
Morris  banks,  25. 
Mortgage  banks    (joint  stock), 

233,   247. 
Mortgage    credit,    20,    75,    82, 

103,    216,    233,    234,    2G6, 

332,  335. 
by  Belgian  Boerenbank,  263. 
by  Rhenish  Laudbank,  2GG. 
Mortgage    Exchange     (Berlin), 

234. 


Mortgage  inquiry  in  Russia, 
234. 

Mortgage    institutions    in    Ba- 
varia, 259. 
in  Russia,  236. 

Mortgage  societies  in  Den- 
mark, 244. 

National  banks,  19,  23,  24. 
Keed     of     co-operative     credit, 

1,  4,  5,  7,  11,   13,   16,  22, 

23,  24. 
New    York    co-operative    law, 

293,  302. 
No    shares,    no    entrance    fees, 

107. 

One  man  one  vote,  61. 
Organisation,    86,    87,    88,    91, 
98,  99,   100,   111,   112,  120. 
Overdrafts,    75,    190. 

Pawnbroking  establishments  as 
mortgage    banks,    238. 

Payment  of  officers,  92,  114. 

Peasants'  associations,   195. 

Pledge  credit,  3,  51,  86. 

Plunkett,  Right  Hon.  Horace 
C,   199,  295,  328. 

Polish  co-operative  banks,  61, 
143,  172. 

Positos,  102. 

Poulett  Thompson's  rule,  75. 

Preference  for  small  appli- 
cants, 83. 

Private  banks,  19,  23,  24. 

Private  capitalists'  mortgages, 
232. 

Productive  co-operative  so- 
cieties, 84. 

Proportion  or  share  to  loan 
capital,   74,  81,  82,  83. 

Raiflfeisen,  F.  W.,  96,  98,  100. 


INDEX 


349 


Raiffeisen  system,  96,  98,  102, 
103,  104,  107,  144,  178, 
181,  280,  336,  338. 

Raiffeisen   central   bank,    144. 

Raiffeisen     banks     in     France, 
116,    184,    185. 
in  Italy,  184. 

Record  of  loans,  88. 

Rediscounting  bills,  G8,   136. 

Remedial   loan   societies,   21. 

Renewals,   15. 

Reserve  fund,  45,  67,  127. 

Risks,  75,  86. 

Roumania,    166,   211. 

Rural  credits,  93,  95,  98,  102, 
103,  109,  110,  111,  182, 
184,   205,    209,   313. 

Russia,  26,  213. 

Russian  mortgage  institutions, 
236. 


Savings,    42,    46,    55,    67,    68, 

117. 
Schulze-Delitzsch,    Dr.    H.,    65, 

71,  72,  73,  97,   100. 
Schulze-Delitzsch     system,     42, 

71,  74,  78,  87,  90,  92,  178. 
Schweizerische    Volksbank,    71, 

81,  178. 
Scotch  cash  credit,  32-40. 
Security,  6,   18,  47,  50,  52,  80, 

83,    124. 
Shares,  73,  74,  116. 

limitation  of  holdings,  72. 
Share  capital,  61,  63,  66,  68. 
Sindaci    (in  Italy),  90. 
Small  trade,  23.' 
Societies      borrowing      powers 

act      (United     Kingdom), 

295. 
Statistics  of  co-operation,  314. 
Southern  commercial  congress, 

1. 


Sorgel,  Parisius  &   Co.,   135. 
Strictness  in  recovery  of  loans, 

126. 
Sureties,  53,  54,  55,  75. 
State  banks,   19,  23,  24. 
State  aid,    179,    180,    189,   191, 

198,   202,  204,  210,   324. 
State    Endowed    Central    Bank 

of  Prussia,   142,   151,   154, 

191,  199,  204. 
Store   liens,    19. 
Switzerland,    71,    72,    81,    121, 

178. 
Syndicats    agricoles    (France), 

192,  193,  209. 

Tapping     the     open     market, 

138,    151. 
Texas  co-operative  law,  293. 
Torrens  system,  268. 
"  Trade  credit  societies,"    179. 
Trading     by     credit     societies, 

341. 
Transylvania,  184. 

Union     inspection     of     banks, 

162,    166,    171,    173. 
Union  congresses,  172. 
Unions   of   banks,    131. 
United    States,    peculiar    con- 
ditions  in,   27. 
co-operation  in,  300. 
co-operative     banks     in,     28, 
300. 

ViganS,  F.,  2. 

Wider  co-operation,  294. 
Wilson,  Hon.  J.  H.,   9. 
Wisconsin      co-operative      law, 

297. 
Withdrawals,  81,   82,   111,   112. 
Wollemborg,   Dr.   L.,   184,  209. 


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